Does Your Business Have Curb Appeal?

The influx of buyers upgrading or purchasing their first house in recent months has contributed to the surging real estate market nationwide. Say you are in the market to sell your house. Some questions potential buyers may include: How does it look on the inside? The outside? What about the location? What is your general impression?

Like selling a house, your business projects an image to potential buyers. When they come to see your business for the first time, your “curb appeal” can attract a buyer to your business or cause them to walk away from it.

Thinking of ways to improve your curb appeal? We’ve outlined a three-step plan below for your business:

1. Fix Your Leaky Faucets

Like many other business owners, you probably started your business from scratch with one or two employees. Fast forward to today, and your employee count may have increased tenfold. Do you have the appropriate HR infrastructure in place for that size of a company? Perhaps you take pride in your informal management style, but it can prove to be a liability when it comes time to sell.

Make sure your human resources policies are at least as stringent as those of the company you hope will buy your business. Some basics to have in place:

• A written policy making it clear you forbid any form of harassment or discrimination;

• A written letter of employment for each staff member;

• A written description of your employee compensation and bonus system; and

• Written policies for employee expenses, travel and benefits.

 2. Assemble Your Binder

When selling your house, it will increase buyers confidence if you have the instruction manuals for the appliances, information on where you purchased the appliances and who to call if one of the appliances breaks down.

Similarly, when a potential buyer looks at your company, they want to see that you have your business information in order. Documenting your office procedures, core processes and other intellectual capital can help you attract more bidders and a higher price for your company, while also lowering the chances of the deal falling apart during due diligence. Another benefit of documenting your procedures is that if an employee were to step away from the business unexpectedly, other employees can still perform duties based on the documentation prepared.

If you want to attract a buyer one day, your business needs a binder with instructions for basic functions, such as:

• Opening up in the morning and closing down at night;

• Forms and step-by-step instructions for routine tasks;

• Templates for key documents;

• Emergency numbers for service providers;

• Billing procedures for customers; and

• How your company is positioned in the market and your marketing tools.

3. Document Your Intangibles

Intangibles for selling your house might include: Is your house near a good school or daycare? What kind of neighborhood is it? What kind of commute are they looking at to get to work?

Your business also has intangibles, often intellectual assets that a potential buyer needs to be made aware of, such as:

• Proprietary research you have conducted;

• Copyrights, patents, trade secrets etc.;

• Existing customer and vendor contracts, agreements, MSAs;

• A formula for acquiring new customers and your existing customer lists;

• Criteria you use to evaluate a potential new location for expansion; and

• Your unique approach to satisfying a customer.

As with selling a house, your company's curb appeal can go a long way toward maximizing your proceeds and closing a deal. Contact Whitehorn today to find out how we can help increase your business’s curb appeal.

Six Power Ratios to Start Tracking Now

Baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base – as a percentage of the number of times they get the chance to try. This is one of the many examples where data is being tracked in professional sports, with an awareness of the importance of data analytics in decision-making.

Similar to professional sports, buyers also like tracking key ratios in a business. The more quality ratios you can provide a potential buyer, the higher their respective comfort levels become with buying your business. A financial ratio provides key decision-makers with better insights into business operations.

 If you are planning to sell your company one day, here is a sample list of six ratios to start tracking in your business now:

 1. Ratio of promoters and detractors

The Net Promoter Score® (NPS) methodology, developed by Bain & Company and Satmetrix, is based on asking customers a single question that is predictive of both repurchases and referrals.  

Find out how to perform your own NPS here

The average company in Canada has an NPS of between 10 and 15 percent. Companies with an above-average NPS grow faster than average-scoring businesses. 

2. Sales per square foot

By measuring your annual sales per square foot, you can get a sense of how efficiently you are translating your real estate into sales. For example, annual sales per square foot for a respectable retailer might be $300. With real estate usually ranking just behind payroll as a business’s largest expense, the more sales you can generate per square foot of real estate, the more profitable you are likely to be.

3. Revenue per employee

Payroll is the number one expense for most businesses, which explains why maximizing your revenue per employee can translate quickly to the bottom line. Shopify, for example, enjoyed a revenue per employee of $420,000 in 2021, whereas a more traditional people-dependent company may fall under $100,000 per employee.   

4. Customers per account manager

How many customers do you ask your account managers to manage? Some sales managers juggle more than 400 accounts, and may not know each of their customers, whereas some high-end wealth managers have 50 accounts. It is hard to say what the right ratio is, but we recommend slowly increasing your ratio of customers per account manager until you see the first signs of deterioration (i.e., slowing sales, drop in customer satisfaction). Which tends to indicate you have pushed it a little too far. 

5. Prospects per visitor

What proportion of your website’s visitors “opt-in” by giving you permission to e-mail them in the future? As every business varies, there is no typical opt-in rate, because so much depends on the source of traffic. Instead of benchmarking yourself against a competitor, we recommend you benchmark against yourself by carrying out tests to beat your site’s historical opt-in rates.

6. Website conversion rate

Your website conversion rate is the percentage of users/visitors that sign up, purchase or download from your website. For instance, a 2% conversion rate means two of every 100 visitors to your website actually take action. According to Adoric, the average conversion rate for a website is between 1% and 3%. Some of our recommendations to increase website conversion rate include:

• Cross-promotion on your company’s social media platforms

• Include a pop-up to the thing(s) you want to promote

• Include links to website in email footers

Case Study

Whitehorn assisted a Calgary-based oil and gas manufacturing company in preparing a robust financial model with monthly forecasting capabilities. Our client understood the importance of tracking key metrics in improving the efficiency of his business operations, as well as providing a future buyer with key ratios for performance evaluation. Whitehorn had extended discussions with our client to determine industry-specific key metrics before preparing a financial model. With the ability to track key metrics, our client was better equipped to make better business decisions. In addition, there is a track record of key metrics recorded for potential buyers in anticipation of a future sale.

Buyers have a healthy appetite for quality data. The more quality data you can give them in the ratio format they are used to examining, the more attractive your business will be perceived. Contact Whitehorn today to find out how we can help you make your business more attractive to buyers. 

Run Your Business Like You Are Leaving It

 How well does your company run when you do not show up for work?

The answer to this question has a significant impact on the value of your business. Suppose your company could survive your absence for a while. In that case, you will score well on something we refer to as “Hub & Spoke,” a key driver for increasing your company’s value.

To understand the Hub & Spoke value driver, visualize a big airport like Toronto Pearson or London Heathrow. They act as a centralized routing location for the airlines that rely on them. The system works efficiently enough until a snowstorm shuts down a hub and the entire transportation system grinds to a halt.

Now imagine you are the hub, and you run your business with important issues coming through you. It is efficient right up until the point you are no longer there to run things, which is why anyone valuing your business will levy a steep discount. 

 The trick to removing yourself is simple: document your standard operating procedures so your employees have instructions for how you want things done when you are not around. 

 How a Maternity Leave Created a Business That Was Built to Sell

Just like many young couples, San Francisco based Ben and Ariel Zvaifler got a puppy and found themselves trying to figure out how to train their new dog. They also wanted to understand what toys and food they needed. The couple figured they were not alone and decided to launch PupBox in 2014, a subscription box for new puppy owners. 

 Ariel was responsible for operations, among other things. She took great care in selecting products and merchandising them inside each PupBox. She even considered details around how each package would be shipped and how it felt when the customer received a PupBox. 

When Ariel found out she was pregnant with the couple’s second child, she set to work documenting her standard operating procedures. She put together instructions for her staff describing how to order products, merchandise each item, and ship boxes. It took Ariel six months to document everything, but by the time she was ready to give birth, PupBox was prepared to run without her. 

These standard operating procedures were a big part of how PupBox grew, which led to a US$250,000 Shark Tank investment and eventually a sale to Petco (NASDAQ:WOOF) in November 2017.

 How to Get Your Company to Run Without You

Start by breaking down your job into tasks, and then prepare instructions for your team so that they can follow your standard operating procedures when you are not there.

Test your team’s knowledge by taking a couple of vacation days to identify gaps in your processes. Plug the gaps with more details, and then take a more extended vacation. Keep lengthening your time away from work and tweaking things upon your return so that by the time you are done, your company can handle your extended absence, similar to a maternity or paternity leave.

 Contact Whitehorn Merchant Capital today to find out how we can help you build value in your business.

Why the Future of Your Business Is Critical to Its Value

As a business owner, you are likely proud of the results you have achieved in the past, but when it comes to the value of your business, your future is critical. That is why your growth potential is one of eight key factors that drive the value of your business.

One metric that acquirers may use to evaluate your growth potential is your revenue per employee.

Alphabet (Google’s parent company) generates around US$1.3MM in revenue per employee. Compare that to the UK based publicly traded advertising agency WPP Group, whose average revenue per employee is around US$100,000. For every dollar of revenue, WPP needs more than ten times the employees than Alphabet does.

It takes time to recruit, train, and motivate people, which is why WPP has grown slower and is valued lower when compared to a less people-heavy company.

Measuring your revenue per employee is just one of many ways an investor may evaluate how quickly they are likely to grow your company.

Looking Skyward

For an example of some of the other ways acquirers assess your growth potential, take a look at Verizon’s acquisition of Portland, OR based Skyward. Jonathan Evans started Skyward in 2012 when he spotted companies like Amazon and Walmart using drones for package delivery. Evans was working as an air ambulance helicopter pilot and realized widespread use of drones would eventually create air safety issues.

Evans saw an opportunity where others had not and launched Skyward to develop software that could safely route drone traffic. While he was not a programmer, his extensive aviation experience enabled him to understand how the current airspace management guidelines could be turned into applications that create “digital train tracks” for drones.

Early adopters like utility, construction, and media companies used Skyward’s software to manage their drone fleets. Investors also came calling. Within a few years, Skyward had raised approximately US$8MM.

One of those investors was Verizon. Drones would require fast and reliable Internet connectivity to operate safely, and the telecom giant wanted a piece of the future. Airbus came calling too, and when Verizon heard of the aerospace corporation’s interest, they leaped into action and offered to buy the company. For Evans, marrying his nascent technology to the country’s largest telecommunications giant was an ideal match.

Within days, Evans sold Skyward to Verizon. Investors enjoyed returns of between three and five times their original investment.

Given the growth of the industrial drone market, Verizon knew Skyward had the potential to expand quickly as significant companies started to adopt drones. Verizon also understood that as Skyward grew, so too would the customer’s need for Verizon’s data because drones rely on a data connection to communicate with the ground.

No matter what business you are in, the critical takeaway is to remember that the value of your business is determined less by what you have done in the past and more by what you will likely accomplish in the future.

Whether you require growth financing to further expand your business or seek strategies to further maximize your growth potential, contact Whitehorn today to find out how we can be of assistance.

Do you need a Chief Financial Officer (CFO)?

Who in your business manages the banking relationship? Do you have any insights on cash flow for the upcoming months? Can you identify which parts of your business are growing or declining? Are you able to see customer and activity trends before they happen? How do you know your business is performing better than your sector? You may not need a full time CFO but you certainly can benefit from the insights and perspective a CFO can provide. 

What is a CFO? How are They Different from a Controller or an Accountant? 

Most businesses have a bookkeeper or a controller that prepare the financial statements regularly. However, the business owner is typically responsible for financial review, strategic planning, corporate development and more. A CFO can deliver much of this and can be a key resource when business owners make critical business decisions.

What does a CFO Do?

The CFO provides insight, guidance and management of a company’s financial functions. This can include:

The strategic and financial advice received from your CFO would provide you with options your business should consider with data to back it up. Your CFO would develop and track key metrics (both financial and operational) to help management better understand opportunities to make more money.

““Beyond simply not knowing that they need a CFO, they don’t want to spend the money. What many entrepreneurs don’t realize is that they’re already spending that money in lost profits and misspending.

They’re not seeing the dynamics of the business from an educated financial point of view. You can’t always go with your gut in making financial decisions, which is what a lot of entrepreneurs try to do.””

— - Inc.com

A good CFO helps you make more money, increase cash flow, improve your key financial relationships and provide a sounding board for strategic decision-making. Not all businesses need a full-time CFO. For companies that only require a part-time CFO, the Whitehorn team can be of assistance. We have over 10 years of experience working directly with private small to medium-sized business owners and have the know-how to help move your business forward.

Reach out to us today to find out how we can help you with interim CFO services.

3 Ways to Transform Repeat Customers into Paid Subscribers

Repeat business drives the value of your company and you can categorize these sales into one of two buckets:

1. Reoccurring revenue comes from customers who purchase from you sporadically. They are satisfied with what you offer and they buy regularly, yet not according to a specific timeline.

2. Recurring revenue is predictable and you get it from customers who buy on a cadence. Usually in the form of subscription or contract revenue, the main difference is your recurring revenue comes in on a regular rhythm.

Recurring revenue is more valuable than reoccurring sales due to its predictability. Therefore, it is worth considering how to turn repeat customers into subscribers. 

We look at an example of an organization that turned reoccurring sales into recurring revenue below:

The HP Instant Ink program

HP had been in the business of selling printers for decades before launching its toner replacement subscription, the HP Instant Ink program. 

HP would sell you a printer in the old days and hope you would come back and buy your toner cartridges from HP. As cheaper replacement options became available, HP started to lose reoccurring revenue from people who owned HP printers but chose a more affordable alternative to refill their cartridges. 

In response, it launched the HP Instant Ink program to solve this problem by offering a toner subscription. HP sends subscribers new toner for its printer each month. You can sign up for a plan based on how many pages you print. If you exceed your page allotment in any given month, you can top up your account. If you fall short, HP offers to carry over your unused pages. Pricing plans start at $1.25 per month. 

How does HP ensure you never run out of toner? It embeds a reader in its printer hardware that sends a message to HP fulfillment when your cartridge dips below a predetermined threshold. Hence, you never run out. 

It’s a brilliant little program and gives HP some recurring revenue while driving loyalty to HP printers.

Inspired by the HP Instant Ink program, here are three secrets for turning repeat customers into paid subscribers:

1. Offer plans based on volume: At HP, its $1.25/month plan allows you to print just 15 pages per month. At the top end, its $28.99 plan gives you 700 pages, with a variety of options in between. This range of options gives customers the ability to pick a plan that will work for them most of the time.

2. Allow carryover: Customers who buy from you on a reoccurring basis will appreciate your various plans. However, they may still hesitate to subscribe if they anticipate their volume fluctuating. That’s why HP allows you to seamlessly buy overage if your printing volume is higher than expected. Subscribers can also carry over unused pages if they don’t need their entire allotment.

3. Never let them run out: One of the reasons consumers prefer buying on a subscription over a one-time transaction is that they never want to run out of what you sell. That’s why HP’s integrated toner gauge reads when your cartridge dips below a threshold. Find a way to measure your customers’ supply of what you sell in real time to ensure subscribers never run out.

Repeat customers are increasingly becoming the lifeblood of any business. If you want to jack up your company’s value, consider ripping a page from HP’s playbook, and turn your reoccurring customers into paid subscribers. 

If you need further assistance, contact Whitehorn Merchant Capital today to find out our specific methods on turning your repeat customers into paid subscribers!

One Way to Decide When to Sell

How do you know the right time to sell your company? One answer to this age-old question is that the time to sell is when someone else is willing to invest more in your business than you are.

When you start a business, nobody is willing to invest in its success more than you. You have already worked a 40-hour week by Wednesday and, if you’re like most founders, you have invested a big chunk of your liquid assets to get your business going.

You’re all in.

In the early days, you are willing to risk your business on a new strategy because the business is pretty much worthless. As the Bob Dylan lyric goes, “When you ain't got nothing, you got nothing to lose.”

As your business grows and becomes more valuable, you may find yourself becoming more conservative, unwilling to risk the equity you have created inside your business on your next big idea. You have reached a point where someone else may be willing to risk more time and money for your business than you are.

Case Study: Peach New Media

David Will is the founder of Peach New Media, which he started back in 2000 as a reseller of web conferencing solutions. In the early days, Will changed his business strategy frequently, trying to find an idea with legs. After a number of pivots, he landed on selling learning management software to associations.

The business grew nicely and by 2015 Peach New Media had 40 employees and then received an attractive acquisition offer from a large private equity company. Will was conflicted. He loved his business and treasured the team he had built. At the same time, the acquirer was offering him a life-changing check.

In the end, Will realized that he had become somewhat more conservative as his business had grown and the potential acquirer was willing to make a big bet on integrating Peach New Media into another one of its acquisitions. Will realized he had reached a point where his appetite for risk in his own business was lower than his potential acquirer’s. Will decided to sell.

When To Sell

The point where a buyer is willing to risk more than you are happens at a different stage for everyone. Let’s say you have a business worth $1MM today. Would you be willing to risk the entire thing on a new strategy for a shot at making it a $10MM company? Many entrepreneurs would take that bet.

Now imagine you have a company worth $10MM and your business represents the bulk of your net worth. Most would argue $10MM is life-changing money. Would you be willing to risk your entire company for a chance to make it a $100MM company? The marginal utility of an extra $90MM is minimal—we all only need so many cars—but the risk is significant. Fewer owners would bet $10MM for a chance at $100MM.

What if your business was worth $100MM? Would you risk it all for a long shot at becoming a billion-dollar company? It is hard to imagine any one-person betting $100MM dollars on anything, but if you’re the CEO of a billion-dollar corporation with ambitious growth goals, $100MM is a bet you may be willing to make.

When someone else is willing to invest more in your business than you are, it may be a good indication that it is time to sell your business. Depending on the buyer, you may even be able to gain access to liquidity at closing while leaving some chips on the table for future upside. Win-win situation.

Contact Whitehorn Merchant Capital today to find out how we can help you decide if now if the right time to sell, and if it is not, we will help you grow value in your company so that when it is the right time to sell you and your company are ready.

Which Country is Lowering its Interest Rates?

As most countries around the world plan to raise interest rates in 2022, this country is doing the opposite and is lowering its interest rates. China introduced an interest rate cut on January 17, 2022. Yes, you read that right, the Chinese central bank has decided to lower its interest rates.

In a stark policy divergence with other major economies, the People’s Bank of China (PBOC) lowered the rate of one-year loans provided to banks by 10 basis points, the first reduction since April 2020. The PBOC lowered the interest rate on 700-billion-yuan ($110.19 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions from 2.95% to 2.85%. This follows its decision to reduce its one-year loan prime rate for mortgages in December 2021.

Official data released on January 17 showed GDP rising by 4.00% in Q4 2021 from a year earlier, the weakest since early 2020. However, economists warned the figure did not consider the effect of the latest omicron outbreaks throughout China, which materially impacted the service industry. 

This marks Beijing’s latest efforts to stimulate growth, which has been faced with challenges including various COVID outbreaks, weakening retail sales and the continued decline in property sales. 

Countries that are expected to raise interest rates in 2022: 

 Countries that raised interest rates in 2021: 

Why is China cutting its interest rate when most of the world is raising it?

1.    Less inflation concerns unlike most of the world

• China’s official consumer price index (CPI) rose by 1.50% in December 2021 from a year earlier, down from the 2.30% recorded in November 2021.

• Chinese authorities eased restrictions on coal production related to climate goals that has led to a run up in raw material prices.

• The supply of pork and vegetables recovered in December 2021 as well from disruptions caused by bad weather in October and November.

 2.    Continued effects of omicron outbreaks

• China has a zero-tolerance approach to COVID-19. Authorities lock down cities completely and curb any form of travel to prevent any widespread outbreaks when a positive case is detected.

• The rising costs of lockdowns and increasing dissatisfaction among its population are heating up.

• Continued detection of omicron cases in major cities like Beijing, Dalian and Tianjin, have led to heightened concerns over the upcoming Lunar New Year holiday travel season and the Winter Olympics scheduled in February 2022.

3.    Cooling real estate sector

• Heavy real estate lending and widespread housing speculation led to China erecting the equivalent of 140 sq ft of new housing for every urban resident in the past two decades. In fall 2021, the Chinese government introduced policies to limit speculation and minimize the risk of a real estate bubble that has made new homes unaffordable for younger families.

• As part of the Chinese government’s efforts to reduce the economy’s reliance on property development, which accounts for 20-25% of GDP, Beijing squeezed financing provided to real estate companies in 2021. This led to an 11.40% fall in the area of new real estate projects in 2021, which consequently reduced the pricing and production of construction materials like steel and cement.

• According to Bloomberg, property investment fell 14.00% in December 2021 year over year, another sign of a slowing property market.

 4.    Falling consumption levels

• With the decline in home prices in smaller cities, the value of the Chinese people’s overall assets has declined, which in turn made them less willing to spend.

• Land sales, which have traditionally been a key source of municipal revenue have fallen materially, leading to civil servants’ compensation being reduced and hiring put on hold.

• According to Goldman Sachs analysts, a 7.00% projected growth in 2022’s Chinese real household consumption would still remain below its pre-COVID trend.

Based on the factors outlined above, the interest rate cut is expected to enable more liquidity to address these concerns. Do not be surprised to see China diverging from the rest of the world in 2022 with additional rate cuts, bucking the trend of rate hikes in a post-pandemic world.

10 things that will make your company more valuable than its industry peer groups

5 Reasons Why Now Might Be The Right Time To Sell

Are you trying to time the sale of your business so that you exit when both your business and the economy are peaking?

While your objective to build your company’s value is admirable, here are five reasons why you may want to sell sooner than you might think: 

1.    You May Be Choking Your Business

When you start your business, you have nothing to lose, so you risk it all on your idea. But as you grow, you naturally become more conservative, because your business actually becomes worth something. For many, your company is your largest asset, so the idea of losing it on a new growth idea becomes less attractive. You may become more conservative and as a result, this may hinder your company’s growth.

2.    Timing Your Sale Is A Fool’s Errand

The costs of most financial assets are correlated, which is to say that the value of your private business, real estate and a Fortune 500 company’s stock all move in roughly the same direction. They all laid an egg in 2009 and in the spring of 2020 now they are all booming. The problem is, you will have to do something with the money you make from the sale of your company, which means you will likely buy into a new asset class at the same frothy valuation as you are exiting at.

3. Cybercrime

If you have moved your customer data into the cloud, it is a risk that you may become the target of cybercrime. Randy Ambrosie, the former CEO of 3Macs, a Montreal-based investment company that manages $6B for wealthy Canadian families decided to sell in part because he feared a cyber attack. Ambrosie and his partners realized they had been under-investing in technology for years, at a time when cybercrime was becoming more prevalent in the financial services space. Ambrosie decided to sell his firm to Raymond James because he realized the cost for staying ahead of hackers was becoming too much to bear.

4. There Is No Corporate Ladder

In most occupations, the ambitious must climb the ladder. Aspiring CEOs must methodically move up, stacking one job on the next until they are ready for the top post. They have to put in the time, play the right politics and succeed at each new assignment to be considered for the next rung.

By choosing a career as an entrepreneur, you get to skip the ladder entirely. You can start a business, sell it, take a sabbatical and start another business and nobody will miss you on the ladder. Your second (or third) business is likely to be more successful than your first, so the sooner you sell your existing business, the sooner you get to take a break and then start working on your next.

5. Objectives and Timing

If you are feeling the fatigue from running your business, realize you are not spending enough time with your family nor pursuing your other passions. If your kids do not have any desire in succeeding you in the family business, these are good signs that it is time to exit. 

The Takeaway: It can be tempting to want to time the sale of your business so that the economy and your company are peaking, but in reality, it may be better to sell sooner rather than later.

5 Reasons why providing standardized service contracts will make your business better

How Your Greatest Strength Can Become Your Weakness

What is your greatest strength as a CEO?

Sales? Marketing? Operations?

Whatever you do well, know that it might become your Achilles’ heel. As owners, we tend to invest in areas where we know we are weak. We know we have limited resources, so we spend what we have on backstopping the places where we are most vulnerable. 

This tendency leads many founders to under-invest in areas where they have natural strength. Two of the most common functions are sales and marketing. Most owners are decent salespeople, so they figure they can compensate for a weakness in generating revenue through force of personality and sheer will. 

But determination only goes so far, and you may reach a plateau where your greatest strength becomes what is holding you back.

How Gold Medal Service Got Stuck at $700,000

Mike Agugliaro is an electrician by training and a natural salesman in practice. He’s a gifted speaker, and his warm personality makes him a magnet for customers. When he started Gold Medal Service with his partner Rob Zadotti, they did not invest much in sales and marketing. When Agugliaro was interviewed on the Built to Sell Ratio podcast, he admitted the extent of their marketing in their first decade of operations was pinning a business card on the corkboard of the local coffee shop. 

Over 12 years, the business grew slowly to around $700,000 in revenue, which was when Zadotti announced he was leaving. The news made Agugliaro re-evaluate what they had been doing. He realized they had been massively under-investing in sales and marketing. 

Agugliaro convinced his partner to stay, and together they started investing heavily in sales and marketing. At the time, the yellow pages were still the primary way homeowners found service providers, so they invested in a double-page spread. They tried radio, fliers, and just about any marketing technique they could measure.

Then the partners started to think of their trucks as giant rolling billboards. Agugliaro’s wife did some research and discovered that humans are hardwired to notice the color yellow. Agugliaro and his wife reasoned that humans must have evolved to avoid bees, so they added black lettering. Gold Medal’s 65 trucks were bright yellow and black and became a mainstay on the streets of New Jersey. 

The investments in marketing paid off, and Gold Medal went from $700,000 in revenue in 2004 to a whopping $32 million in sales by 2017. Months later, Sun Capital acquired Gold Medal for a significant premium over the 5 x EBITDA multiple typical of the home services industry. 

The takeaway? Your greatest strength can help you start a business. Still, at some point, you may be tempted to underinvest in your strengths, which is when they switch from your most significant assets to a hidden liability. As your business grows, you may need to invest in areas you never considered necessary in the past. 

Reach out to a Whitehorn advisor today and see how we can help you keep your greatest strength as a strength and build value for your company. 

Stop Selling Your Time

If your goal is to build a more valuable company, STOP selling your time. Billing by the hour or day means customers are renting your time rather than buying a result, which means that your business model lacks leverage.

One of the factors that acquirers look for in the businesses they invest in is your company's Growth Potential. Simply put, they want to know how fast they could grow your business, and nothing diminishes your Growth Potential more than selling your time.

Billing by the hour can also drag down your customer's satisfaction with your business — because customers dislike the feeling of being nickel-and-dimed. They know you may be incentivized to lengthen the time a project takes, while they want an efficient solution in the shortest time. This misalignment can lead to unhappy customers, which can destroy the value of your business. 

Peddling time also invites competition. When you sell your time, you allow customers to compare you with others offering the same service. This can lead to downward pricing pressure and lower margins as you become commoditized. We present an example below:

Case Study: How Likeable Media Stopped Selling Time

Carrie and Dave Kerpen started Likeable Media, a social media agency, in 2006. Facebook was emerging as a dominant platform and marketers were trying to figure out how to monetize users of their platform.

The Kerpens started selling their time but quickly realized the limitations of an hourly billing model. They realized that customers did not want to buy their time. Instead, Likeable customers wanted to buy social content. Marketers wanted a video they could post to their Facebook feed, or a blog post they could publish on their site.

The Kerpens decided to switch from an hourly billing model to the Content Credit System. They assigned each piece of content several credits. For example, a tweet might be one credit, a written blog post might be ten and a video might cost twenty credits. Customers signed up for an annual allotment of credits they could roll over month to month. 

The Content Credit System transformed Likeable Media for the better. To begin with, customers were no longer buying time. Instead, they were happy to pay for tangible output rather than trying to scrutinize an hourly bill. The credits also made it easier for Likeable's Account Managers to upsell customers. They no longer needed to justify why a particular project would take more time. Instead, they suggested that customers buy more credits if they needed more content. 

The Kerpens’ innovative billing approach also created recurring revenue because the Content Credit System relied on annual contracts renewed each year. 

The Content Credit System also transformed Likeable's cash flow because customers paid for their credits upfront.

Most importantly, the Content Credit System enabled the Kerpens to stop selling their time and build a team. By 2020, Likeable was up to more than 50 full-time employees when they caught the attention of 10Pearls, a digital strategy company that acquired Likeable Media for 8.5 times EBITDA, a healthy premium over a typical marketing agency.

The bottom line? If your goal is to grow a more valuable company, stop selling your time and start selling your customers' results.

Reach out to a Whitehorn advisor today and see how we can help you create a more valuable company.

Cryptocurrency Update

2021 has been action packed so far in the cryptocurrency world. From wild price swings, the increasing adaptation by public companies, and the overall increase in demand, it is hard to argue that cryptocurrencies are a fad. The emergence of cryptocurrencies as a new asset class have further fueled interest by both retail and institutional investors globally. Blockchain, the technology behind many cryptocurrencies is increasingly applied even beyond the digital currency industry. In this article, we provide insight on the top cryptocurrencies today and highlight noteworthy developments throughout the first half of 2021.

Major retailers have increasingly warmed up to payment in the form of cryptocurrencies, particularly Bitcoin and Ethereum. Currently, the companies below accept some form of cryptocurrency as payment:

Current Top Cryptocurrencies

The following summarizes the top six cryptocurrencies in circulation today by market cap:

Note: Retrieved from CoinMarketCap on July 5, 2021.

According to CoinMarketCap, the entire crypto market has a market cap of US$1.43T on July 5, 2021. The cryptocurrency market cap hit an all-time high of US$2.02T on April 5, 2021, according to CoinGecko and Blockfolio following record demand from both institutional and retail investors. Since then, overall prices have fell. Bitcoin’s market cap represents 43.95% of the total crypto market cap, followed by Ethereum with a 18% market share.

To put this into perspective, the scale of the cryptocurrency market compared to other national currencies are presented below:

The following chart summarizes Bitcoin’s pricing since the beginning of 2020:

Why the recent decline?

Based on various sources, the recent pullback across the crypto industry can be partly attributed to the following:

1.       Regulatory concerns

Crypto assets are increasingly being scrutinized by regulators worldwide as these assets gradually become a larger part of global financial markets. As examples, the following briefly summarizes both the US and China’s current, public stance on cryptocurrencies in general:

•  The US Treasury announced on May 20 that all cryptocurrency transactions worth US$10,000 or more will be required to be reported to the Internal Revenue Service. The announcement was part of a broader announcement by the Biden administration to crack down on tax evasion and promote better compliance. Both Democrats and Republicans are prioritizing crypto-asset regulation following the massive run-ups in 2020 that have sparked concerns of market manipulation.  

•  In addition, prominent figures have voiced concerns over the need for crypto regulation. Newly appointed Securities and Exchange Commission (SEC) Chairman Gary Gensler recently commented that more investor protection is required in the crypto markets, as well as the need for regulation to prevent fraud and other issues. As well, Senator Elizabeth Warren called for cryptocurrency regulation during the Senate banking committee hearing on June 9.

• On May 21, 2021, China banned financial institutions and payment companies from providing services related to cryptocurrency transactions, as well as called for a crackdown on crypto mining and trading. This is China’s latest attempt to clamp down on the digital trading market. China concurrently warned investors against speculative cryptocurrency trading, claiming it “seriously infringes the safety of people’s property and disrupts the normal economic and financial order”.  Thus far, China has banned cryptocurrency exchanges and initial coin offerings but has not prevented Chinese citizens from holding cryptocurrencies yet.

2.       Concerns over lack of traceability

Cryptocurrency enthusiasts proclaim digital currencies are a secure, decentralized and anonymous way to conduct transactions. However, US investigators were able to recover US$2.3MM of the US$4.4MM in Bitcoin ransom paid to a group of hackers who hacked the pipeline network of Colonial Pipeline on May 7, 2021. Court documents released in the Colonial Pipeline case say the FBI got in by using the encryption key linked to the Bitcoin account to which the ransom money was delivered. However, officials have not disclosed how they got that key. The news raised concerns over cryptocurrency security and thus, contributed to a decline in crypto pricing across the board.

3.       The Musk effect

Despite being touted as a decentralized industry, the overall cryptocurrency market appears susceptible to one individual - Tesla Motors’ CEO Elon Musk. To be clear, no one knows exactly what causes crypto prices to fluctuate, but Musk certainly seems to contribute to some of the recent price changes. Over the past few years, crypto market prices seem to rise or fall based on Musk’s tweets and public comments regarding cryptocurrencies.

Other crypto updates:

Conclusion

Following the explosive rise of pricing and popularity, cryptocurrencies will continue being scrutinized by governments and regulatory bodies going forward to ensure consumer protection and to prevent material market disruptions. Despite this and the wild fluctuations in pricing, cryptocurrencies will still become increasingly prominent within the global financial system. In Canada alone, we have witnessed the formation of Bitcoin and Ethereum exchange-traded funds (ETFs) in the past few months. In addition, portfolio managers are increasingly regarding cryptocurrencies as another portfolio component for further asset class diversification. The growth in cryptocurrency names (especially the smaller ones) have garnered the attention of many speculators, which further contributes to the high volatility. It is a fool’s errand trying to predict what crypto prices will be at the end of the year, let alone next month. However, we do expect cryptocurrencies to remain in the spotlight amidst high volatility.   

Everything you need to know about ESG

What is ESG (Environmental, Social and Governance)?

Environmental: How the company acts towards the environment, it helps measure how sustainably a company is operating and can include:

• Energy use

• Waste

• Pollution

• Greenhouse gas (GHG) emissions

• Deforestation

• Treatment of animals

Environmental can also be used to evaluate environmental risks the company may face and how the company would handle those risks.

Social: How the company acts with respect to its business relationships, including towards its employees, customers and communities. This can include:

• Working conditions

• Impact on the communities

• Diversity of labour force and inclusion of minorities

• Product safety

Governance: How the company manages itself. This involves the morals and ethics of the company. This can include:

• Transparency

• Diversity in the board

• Stakeholder input

• Cybersecurity

• Illegal practices

• Bribery and corruption

There is relatively low regulation for governance on private companies compared to public companies, but having good governance is still key for long-term success. A system of reporting within an organization can be a first step. The owner / manager may play most governance roles within the company but how the owner acts on both financial and other reporting is critical. How does the owner seek guidance? Perhaps a formal board would help the owner set out the business strategy and manage macro level concerns and opportunities.

““At its core, ESG investing is about influencing positive changes in society by being a better investor” ”

— Hank Smith, Head of Investment Strategy at The Haverford Trust Company

ESG vs Socially Responsible Investing (SRI)

While you may be thinking that ESG sounds like SRI, there are a few key differences between them. For starters, SRI is normally driven by a set of values usually guided by religious or certain societal principles, whereas ESG investments tend to be driven by more generalized moral values. SRI screens for things such as firearm production, alcohol, tobacco, gambling, terrorism affiliations, human rights and environmental damage whereas ESG is more focused on the moral values such as those listed above.

How Did ESG Become So Popular?

ESG issues were first mentioned in the 2006 United Nation’s Principles for Responsible Investment (PRI), and was required to be incorporated in the financial evaluations of companies as a result. At the time, 63 investment firms signed on to follow the principles, covering approximately $6.5 trillion in assets under managements (AUM). As of June 2019, there were 2,450 signatories representing over US$80 trillion in AUM.

Although ESG was first talked about in 2006, it did not start to really gain traction among investors until the last few years, mostly due to millennial investors. Millennials (born between 1981-1996) have had an increased interest in investing where their values and beliefs align closely with an organization. According to a Morgan Stanley survey, 84 per cent of millennials prefer to invest in companies with a focus on ESG as a central goal. Institutional investors also want to see an increase in ESG. They want an ROI on their money and want to see a sustainable future.

““Combined with a push from CEOs of major corporations to identify ESG risks within their own businesses, and with more regulations – in Europe, but soon elsewhere – around sustainable finance-related disclosure requirements, interest in ESG will likely continue well into the future” ”

— - Priti Shokeen, head of ESG Research and Engagement at TD Asset Management Inc.

How Do You Make Money Investing in ESG?

One might think that if a company is spending resources monitoring ESG impacts and making decisions to improve its ESG impacts, it means it is less profitable or operating at a competitive disadvantage. From an investment return perspective, this has not been the case, at least based on the history available. Since 2018, when ESG funds became mainstream, many ESG focused ETFs have shown returns similar to their non-ESG focused indexes. 

Note: Historical data from May 6, 2019 to June 21, 2021 retrieved from Refinitiv Eikon.

Many investment managers believe, using an ESG screening criteria for their investments generally helps identify management teams with vision and management styles more instep today and going forward. If you are operating a business without ESG in mind, the theory holds you are going backwards and are less likely to adapt in the future.        

How Much Capital is Flowing into the ESG / Sustainability Sector

According to Bloomberg, inflows into Canadian-based ESG funds topped $3.2 billion in 2020, while total net assets in ESG funds topped $22 billion, a 37 per cent increase over the year before. ESG assets may hit $53 trillion worldwide by 2025, a third of global AUM. Below looks at ESG projected AUM by select countries.

How Does ESG Impact My Private Business?

The ESG momentum is already impacting M&A in the private sector. Many large companies have adapted their acquisition criteria to at least maintain or improve their company’s ESG ratings. As well, most private equity firms are being proactive at addressing ESG criteria in their review of potential acquisition candidates. The bar is likely still relatively low for a private company but ensuring the business is at least “not a negative” from an ESG front is critical to attract as many buyers as possible. This could mean preparing the following:

Environmental – Ensuring all environmental guidelines as set out by governments or industry standards are exceeded. Do you monitor the soil at your business’s locations? Have there been any issues historically that could be managed better? Are you able to reduce air emissions by utilizing new technologies? Do you know your business’s carbon / methane footprint?

Social – How does your business interact with its local community or communities? Do you know your neighbours? Are there causes, charities, issues that are important to the community that are also important to the employees of your business? Is your labour force diverse relative to your community? Is there any subconscious bias in your hiring practices or policies?

Governance – Do you have a board? How are macro issues / opportunities reviewed and acted upon? There are no “one-size-fits-all” solution for private company governance. The lack of a formal board is not likely to reduce a buyer’s interest level significantly. However, having some support for management to access experienced, outside advice can be a huge benefit to growth, development and keeping the business as current as possible.

Conclusion

The ESG trend is here to stay, and it will be the “norm” of how businesses are reviewed and evaluated going forward by most stakeholders and especially lenders, investors and buyers. We would be happy to discuss your business’ ESG plans and share our experiences working with private equity investors and corporate buyers as they complete their ESG due diligence and reviews.  

The Canadian Plant-Based Industry

Previously, we looked at the investment projects Protein Industries Canada (PIC) was making, take a look here. This article will look at how the plant-based industry is growing in Canada for both consumers and producers along with other Canadian protein companies’ investments. It looks at how Canada is a leading exporter of plant-based protein and how consumers in Canada are starting to pick plant-based proteins instead of meat.

Producers

As of 2019, Canada was the fifth largest exporter of agricultural and agri-food products in the world.

Source: WTO Secretariat based on data from Comtrade and Trade Data Monitor

Canada exports roughly $56 billion in agriculture and agri-food products each year. Canada is the leading producer and exporter of pulses (dry peas and lentils that can be used to create plant-based proteins). In the first 10 months of 2020, Canada’s exports of pulses reached $2B, an increase of 94.6 per cent compared to the same period in 2019. India is the largest importer of Canadian pulses, importing $687.6MM worth in 2020 followed by Turkey importing $313.3MM. The two charts below looks at the top five countries that exported pulses both by quantity and value from 2019, with Canada dominating the categories.

Source: Comtrade, United Nations

Source: Comtrade, United Nations

With an increase in demand for plant-based products, many Canadian companies who are in the plant-based industry are engaging in financing, acquisitions or funding. The Government of Canada has also invested $2.6MM to help grow Alberta’s plant-based protein sector and PIC was awarded $150 million as part of the federal government of Canada’s Innovation Supercluster initiative. The table below looks at which companies have recently or plan to engage in financing, acquisitions or funding.

Consumers

Data from Nielsen shows that the sales of plant-based foods in Canada grew by 16 per cent for the year ending in 2019, making the industry worth more than $500MM. Canada is not only is a top producer of plant-based proteins of pulses, Canada also leads the way with more consumers starting to choose plant-based products over meat products. Canadian youth are one of the biggest consumers of plant-based products, which can be partly attributed to their environmental consciousness. Around 70 per cent of young Canadians say plant-based lifestyles are here to stay and 74 per cent of Canadians perceiving meat reduction consumption as a way to reduce their carbon footprint. The provinces with the highest interest in plant-based diets are P.E.I., BC, NS and ON. The revised 2019 Canadian Food Guide highlighted the benefits of different protein sources such as nuts, beans, legumes and more plant-based options than in previous versions of the food guide which may also be why more Canadians are open to a plant-based lifestyle.

To appeal to a larger audience and to keep up with the changing times, many restaurants are offering plant-based proteins/ vegan options. Not just chain restaurants in Canada have picked up plant-based options, local restaurants have also been adding more plant-based options for consumers as well and we are starting to see a lot more local vegan restaurants pop-up around the country as well. You can see the top local Vegan restaurant’s for Calgary, AB here and top local vegan restaurants for Canada here.

Conclusion

Overall, the plant-based industry is growing in Canada both for producers and consumers. With the increase in restaurants and food retailers offering plant-based options, food manufacturers can take advantage of this trend that seems to be here to stay by diversifying offerings and appealing to a larger audience.

Renewable Green Index

Since our inception in 2009, Whitehorn has covered the energy services sector, including with our weekly newsletters and quarterly reports. We are excited to add to this coverage our new Renewable Index outlined below (Whitehorn also covers the Manufacturing, Food Processing, Engineering and Software & Technology sectors).

Our Renewable sector coverage focuses on North American headquartered businesses in the following subsectors: Solar Power and Manufacturing; Renewable Manufacturing and Services; Battery and Fuel Systems; and Renewable Utilities. All companies within our coverage have a market capitalization of over C$250 million (as of March 19, 2021).

Market Capitalization Exploded in 2020 – Dropping in 2021

Before July 2019, our Renewables index performed admirably – up 23.5%, but that was nothing compared to the booming growth that was to come. There is a disconnect between financial performance and market valuation, market momentum and sector sentiment drive valuations.

The Renewables space has been the focus of significant attention – from business to consumer to the Biden Presidency; environmental-friendly initiatives have garnered more attention and capital over the past 24 months, especially during the excellent market run in 2020. 

However, how sustainable are these valuations with regards to traditional ”value” investing? Cash Flow? Profitability? With our index growing in market capitalization from $40 billion in early 2018 to over $400 billion by March 2021, we would expect to see significant improvements in revenue, earnings, and cash flow. Looking at the results, as much as there is improvement across almost all constituents, it still lags far behind share price performance.

A.      Solar Power and Manufacturing (SPM) sub-Index:

Average 52-week total return: 200% (excluding Sunworks +3,776%)

*EV/EBITDA excluding two negative EBITDA Companies

*P/CF excluding three negative Cash Flow companies

The SPM sub-index thrived in the marketplace, making almost all constituents multi-billion-dollar market-cap companies in 2020. Valuation multiples are incredibly high (shared across the entire index), but we see some substantial growth numbers within the companies. EBITDA and Cash Flow compound annual growth rates of over 30% (2017-2021F) support some multiple and valuation expansion – but we believe the risk of maintaining these growth rates over the long-term (to justify current market prices) will be challenging.

B.      Renewable Manufacturing and Services (RMS) Sub-Index:

Average 52-week total return: 297% (excluding GreenPower Motor Company +1,661%)

*P/Revenue excluding one negative revenue company

*EV/EBITDA based on three positive EBITDA companies

*P/CF based on three positive Cash Flow companies

The RMS subsector has seen even more aggressive growth in its share price performance within the last 12 months and since January 2018. A market cap 5-year CAGR of 209% is extreme in the best of circumstances. Despite a 52-week total return average of 297%, most constituents have negative cash flow and EBITDA, and even one with negative revenue…

The most potent sign of the extreme discount between market performance and financial performance may be Plug Power (PLUG), mired in accounting irregularities, which resulted in a delay in its Q4 filings and notice from the NASDAQ to get its financials restated by May 17, 2021. PLUG reported NEGATIVE revenue in Q4 and full-year 2020 (leading to NASDAQ issues). Why include PLUG in our index given negative revenue, negative EBITDA, and an impressively negative $703 million in LTM cash flow? A 52-week total return of over 885% and a market cap over $23 billion! Boggles a value-investor mind. But they do have $1.3 billion in cash on the balance sheet, so they can absorb at least two more years of similar massive cash flow losses if need be.

C.      Battery and Fuel Systems (BFS) Sub-Index:

Average 52-week total return: 419% (excluding Cielo Waste Solutions: +2,050%)

*EV/EBITDA based on three positive EBITDA companies

*P/CF excluding three negative Cash Flow companies

Our BFS sub-index is showing the lowest revenue growth rates across our Renewable index. Its EBITDA and cash flow growth rates are equally modest, but market sentiment drives these company values higher (a common theme within our Renewable space). The largest company in the sub-index. Ballard Power Systems, highlights the variance between performance and value. With essentially flat revenue growth from 2017 - 2021F ($152.5 million to $151.4 million), negative EBITDA, and negative cash flow (expected to hit a cumulative 5-year cash flow of -$160 million, from 2017-2021F, we would expect  an underperforming share performance. Wrong! Ballard Power Systems demonstrated a robust 89% CAGR (January 2018-March 2021) and a 52-week total return of 128%. The market momentum around renewable energy and electric vehicles has allowed the company to raise much-needed cash in the equity markets, completing over $664 million in share sales (via a $1.5 billion shelf prospectus). Ballard Power has shored up its balance sheet strength, but operationally it remains years away from positive cash flow.

D.      Renewable Utilities

Average 52-week total return: 46%

Finally, our rather “dull” renewable utilities sub-index demonstrated relatively modest share returns (ONLY a 46% 52-week total return) favorable growth rates across revenue, EBITDA, and Cash Flow. With all eight constituents showing positive cash flow over the last twelve months and with by far the lowest valuation multiples, this sub-index trades at levels more consistent with what we would think for cash flow positive businesses and seems to be less impacted by the hype surrounding our other sub-indexes. As a result, we expect to see this slow & steady sub-index outperform the other indices if the sector as a whole reverts to more traditional financial metrics or sees reduced sector sentiment or access to the capital markets fundraising.

Final Observations

• Our Renewable Index has 32 Companies Across Four Sub-Indexes.

  • 11 have negative trailing EBITDA and cash flow.

  • 11 also have significantly more cash than debt.

  • 5 of the 21 companies with net debt have negative EBITDA.

Access to capital will remain critical for many companies in our index – with most having to rely on solid equity markets to sustain ongoing financing needs. Of the 11 companies with negative cash flow, seven have significant cash balances, and we would expect most of them to continue seeking capital from the equity markets.

Overall, we believe many of these companies are overvalued based upon past and near future financial performance. With three of our four indices having Price/Revenue multiples greater than 10x and EV/EBITDA multiple with either no meaning (negative EBITDA) or extreme multiples, there is a high probability of a significant pull back in share values, which may impact their ability to raise capital in the markets.

Our Renewable Utility sub-index has the lowest valuation multiples, the strongest financial performance (among our index), and has shown the least share price appreciation. However, it also has the highest net debt levels, with an average net debt EBITDA multiple of 5.9x.

Overall, while investment and growth in the renewable energy sectors will (and should) continue over the decades to come, that investment (by governments, businesses and consumers), has yet to translate into meaningful, profitable operations as witnessed in our Renewable Index.

Where Does Oil Go From Here?

Note: All prices are in US$.

Over the past 12 months, global oil prices have ranged from under $20 a barrel to its current high of around $65. In early 2021, most economists predicted a stable price for the duration of 2021 with some modest upside – ranging from $45 to $55 at best. Since oil prices passed most predictions in the first few weeks of 2021, where does the price go from here? Does anyone know?

Economists across North America have been revising their estimates higher since the fall of 2020, as demand predictions show a return to normal consumption just around the corner. These revisions have been justified by the COVID vaccination roll out across the globe and signs that OPEC+ is not likely to increase production fast enough to match the rising demand. 

As most are well aware, predicting oil prices is not for the faint of heart. In normal times, there are an array of uncertainties to be considered. The current environment has introduced even more uncertainties and risk factors layered on top. 

Some of the “new” unknowns creating uncertainty for oil prices include:

• Has a material portion of oil demand evaporated forever?

• When will oil demand return to normal – 2021? 2024?

• What is the US dollar going to do?

• When developing economies like India and China see economic growth pick up, will oil prices be driven up as well?

• What will US oil production be next year? When will President Biden’s “structural adjustments” take effect? How will US based shale producers react?

And the biggest uncertainty that has been a factor since the 1960/70s:

• What will OPEC / Saudi Arabia do? This point is further complicated by the recent terrorism attacks on key infrastructure in Saudi Arabia. 

The U.S. Energy Information Administration (EIA) has also been increasing its short term price guidance recently as well.   

March 9, 2021

(STEO is the “Short-term Energy Outlook as provided by U.S. Energy Information Administration)

Sourced from EIA

The Alberta Government has stuck with its predictions from December 2020 of an average price in 2021 of $46 per barrel, despite the current price of approximately $65, which is toward the high end of the range based on their guidance.

On the contrary, the forward NYMEX WTI Crude Oil curve would suggest the price is ahead of itself and will be dropping off toward the end of 2021 and staying in the $50 to $55 range for most of 2023 and 2024.  

What to make from all the Data?

The one thing the “experts” seem to agree on is the direction of the price of oil over the next couple of years. Despite the WTI Forward Curve, most economists included here, are expecting the current price to at least be maintained, if not increase through 2022. There seems to be consensus that demand will be picking up faster and production will grow to meet demand. However, over the next year or so, the production growth is likely to lag, which will cause upward pressure on the price. It would seem by mid 2023, the market is likely to return to balance and we will start to see pricing settle in the $50 to $60 range. 

Now having said that, all oil predictions need to come with the caveat “subject to what OPEC does”…

Top 2 Ways to Make Your Food Manufacturing Company More Sustainable

This article outlines the two top ways your food manufacturing company can become more sustainable: reducing food waste and modifying packaging. Sustainability is here to stay, and if you want to grow your market share you should consider these tips.

Note: This article looks at food manufacturing specific examples of how to become more sustainable. For more general sustainable manufacturing practices check out our other blog: Sustainable Manufacturing – The Benefits Are More Than Being Green

1.   Reduction of Food Waste

A great way to become more sustainable as a company is to reduce food waste, and not just reducing food waste in your manufacturing practices, but also reducing the potential for food waste after it gets into your customer hands. According to Agriculture and Agri-Food Canada, more than half of Canada’s food supply is wasted annually, which works out to around $49.5 billion in wasted food. Food waste happens anywhere throughout the supply chain from the farm to the table. Supply chain alone was responsible for an estimated 12 per cent of Canada’s food waste in 2019.

““With nearly one third of all food produced lost or wasted, tackling food waste is critical to build a more sustainable future.” ”

— Dr. Evan Fraser, Director of the Arrell Food Institute

Below are some tips on how your company can help reduce Canada’s food waste:

A.      Improve labels and Instructions

Improving labels and instructions can help your customers have a better understanding of how best to keep your product so that it does not become waste. A simple change can include making the best before date clearer. Another change can be including instructions on how to cook, freeze, thaw and store the products.

B.      Improve Forecasting

If you notice that you often have food waste at your facility, maybe it is time to invest in newer technology and start implementing Industry 4.0. This can help you gain better and a more detailed incite on your forecasting and result in a lower chance of having to waste food due to excess raw materials. Not only can better forecasting help you reduce food waste, but it can also help you save money and increase profitability.

C.       Change Portion Sizes

As seen in the chart below, the average number of people per household has been decreasing over the years. This means that larger portion sizes are not often being fully used before the food goes bad, leading to more food waste. By reducing or creating two different portion sizes, consumers can buy the size that is best for their respective household size and therefore help reduce food waste.

Number of Households and Average Number of People Per Household, Canada, 1851-2011

Sourced from Statistics Canada

2.   Changing Up Packaging

As mentioned briefly above changing your packaging can help reduce food waste, but it can also help your company become more sustainable. Sustainable packaging can be many things including changing current packaging to recycled or raw material. Another way to change packaging is to reduce the amount of single use plastic and reduce the overall amount of packaging.

Packaging has always been used to make one’s product more appealing than another, and to help stand out to the consumers. Changing one’s packing to more sustainable packaging is another way to make the item standout. 94 per cent of Canadians are motivated to reduce their single-use plastics according to The Agri-Food Analytics Lab at Dalhousie University. The below chart shows Canadians most favoured alternative to plastic packaging.

Preferred Types of Environmentally Friendly Food Packaging in Canada as of May 2019

Sourced from Statista

Vancouver based, Good Natured Products Inc. through its subsidiaries, designs, produces, and distributes bioplastics for use in packaging and durable product applications in Canada and the United States. It offers packaging products for baked goods, deli and prepared meals, and fruits and veggies as well as compostable take-out containers, such as hot cups and lids, plates, carry out boxes, cutlery, and soup bowls and lids. The company was formerly known as Solegear Bioplastic Technologies Inc. and changed to its current name in 2017.

Examples of Food Manufacturing Companies Switching to Sustainable Packaging:

NIKU Farms is a Canadian farm-to-door meat subscription box company. It announced it would start using Green Cell Foam, a natural, environmentally friendly packaging material that is biodegradable and requires 70 per cent less energy and 80 per cent fewer GhG to produce than petroleum-based foams.

Maple Leaf Foods has a vision to be the most sustainable protein company on Earth. To work towards this goal, it uses 100% recyclable trays for all of their raw meats and 100% recyclable packaging for boxes used for frozen goods. Maple Leaf Foods also used 100% post consumer recycled plastic water bottles to make clear protein trays.

Carlsberg is working on a biodegradable ‘paper’ beer bottle made from sustainably sourced wood fibers. Although this ‘paper’ beer bottle is still in the testing stages, Carlsberg also has a Snap Pack for beer cans which uses 76 per cent last plastic than normal six pack rings.

Conclusion

We believe that both reducing food waste and improving packaging are key for food manufacturing companies moving forward if they want to stay competitive in the marketplace. Sustainability has become a large deciding factor for which products people are purchasing. Although this article only investigates two different food manufacturing sustainable practices, we highly recommend our Sustainable Manufacturing – The Benefits Are More Than Being Green blog. This blog highlights more benefits of becoming a sustainable manufacturer and other ways to become more sustainable.

Green Engineering & Construction

Climate change. It is hard to argue against this issue being the largest environmental challenge globally today. As the world becomes increasingly aware of the importance of sustainability, green and sustainable practices are reshaping the engineering and construction industry more than ever. With legislation and energy codes becoming increasingly stringent, green engineering and construction have become the standard for developers, homebuyers, building owners, and tenants.

What is Green Engineering & Construction?

According to the US Environmental Protection Agency, Green Engineering is the design, commercialization and use of processes and products that reduces pollution, promotes sustainability, and minimizes risk to human health and the environment without sacrificing economic viability and efficiency. It is widely perceived that green engineering has the greatest impact and cost-effectiveness when it is applied early in the design and development phase of a particular project or process.

Green Construction refers to the practice of building structures that are designed and constructed to maximize the occupants’ health and productivity using fewer resources, reducing waste and minimizing environmental impacts throughout the structure’s lifecycle. Green Construction emphasizes the efficient use of energy and water, as well as the reduction of waste and pollution.

All stakeholders understand the long-term benefits of green structures, which include higher energy efficiency, reduced waste, and a lower building life carbon footprint.

Current Landscape

In December 2020, the Canadian federal government announced its “Investing in Canada Plan Infrastructure Program”. See summary below:

Since his inauguration, US President Joe Biden has signed several executive orders signaling his commitment to “green” federal infrastructure projects, especially for those focused on climate change. We believe this further indicates that the current political climate in both Canada and the US are increasingly more committed to sustainable and green construction.

Application

Some common methods of green engineering and construction include:

a.  Using more environmentally friendly building materials (see select examples below):

b.  Better construction waste management.

This includes disposing construction waste and toxic materials in a thoughtful and safer way. Some examples include:

• Opting for non-toxic chemicals over traditional chemicals for easier and less harmful disposal.

• Reusing or repurposing building materials where applicable.

• Implementing waste sorting procedure at jobsites for reuse and recycling efforts.

• Crushing excess / unused concrete for use as foundation or as aggregate beneath other building structures.

Other recyclable construction debris include porcelain, tile, lumber, metals, masonry, plastic, carpet and insulation.

c.  Reducing waste as much as possible through processes like modular construction.

Also known as prefabricated construction, this method allows for the primary elements of a building structure to be assembled in a controlled environment using assembly line systems.  Mechanical contractors use Building Information Management (BIM) systems to cut and prepare materials indoors to avoid shape changing problems caused by varying weather conditions outdoors. Materials preparation in a controlled environment reduces the damage caused by natural elements (temperature, weather, humidity etc.). Indoor planning and assembly also save time with access to equipment that may not be readily available on jobsites. All these contribute to less building material waste for the overall project.

d.  Emphasis on green building practices.

Green buildings can preserve natural resources and improving our quality of life. Some common features include:

• Efficient use of energy and water. E.g., LED light bulbs, smart thermostats, optimization via sensors, hot water recirculating system upgrades, rainwater capture.

• Use of renewable energy. E.g. solar panels.

• Designs that enable adaptation to a changing environment, especially in seasonal climates.

Anyone who has ever observed a construction site can attest to the amount of waste produced. According to the Canada Green Building Council:

LEED-ing the way

Leadership in Energy and Environmental Design (LEED®) is currently the most widely used green building rating system globally. Since 2005, LEED Canada has led to:

Green Mergers & Acquisitions (M&A)

Engineering and construction companies understand the benefit of offering sustainable environmental services as part of the overall solution to clients. Having such a service offering increases a company’s appeal and its chances of winning new project bids, especially with most construction projects today emphasizing sustainability.

We at Whitehorn have observed several recent M&A transactions involving engineering and construction companies, which appear to be based on the industry-wide green theme. Since December 2020, we observed 27 transactions involving Canadian and US engineering and construction companies that were green focused. The targets acquired specialized in various sustainability practices including renewable energy, environmental compliance reporting, sustainable building materials to name a few. We summarized select transactions below:

We believe environmental sustainability is and will continue to define the engineering and construction industry for decades to come. Green and sustainable practices will continue to fuel green M&A transactions similar to the ones listed above. We also believe these transactions are just the beginning of “the Green M&A Wave”.  Engineering and Construction companies are adapting and M&A presents opportunity to profit from the increasingly stringent legislation and energy codes as well as keep up with the green societal and political push worldwide. Companies seeking a competitive advantage are already diving into the market seeking strategic “green” acquisitions to stay ahead of the competition.

We leave you with a few questions to ponder: Is environmental sustainability part of your firm or company’s strategic goals going forward? Do you see the benefits from capitalizing on the renewable and “green” trend that has been gaining momentum? Would your firm of company benefit from a strategic acquisition of a peer with environmental solution offerings?

If you answer yes to any of the above, reach out to us. Whitehorn is well positioned to assist you in identifying and contacting acquisition target(s) that would expedite your “green” transition and ultimately, lead to further growth. Give us a call!