Succession planning in the groundwater industry
With our aging demographic and changing society, retirement-bound owners have big decisions ahead
September 15, 2020 By Carolyn Camilleri
The Boadway family has been providing water-well services in the Sutton, Ont., area since 1880, back when wells were dug by hand and pumps were crafted from wood.
Four generations later, in 1966, Roger Boadway took over the well-drilling aspect of the business and began manufacturing pumps in Stouffville. Roger is 84 now and still works seven days a week. His son Grant, the fifth generation, has been drilling for 38 years.
That’s a lot of history, but like many family businesses across Canada, the Boadways are faced with uncertainty about the future. Grant’s son isn’t likely to follow in his footsteps.
“I have a grandson and he’s getting older, so maybe, but I don’t know,” Grant says. “I’m 55 now and I plan on doing this for a lot longer yet, but it’s worrisome that it may end at the fifth generation.”
The Boadways are not the only family of well drillers facing this problem; Grant lists several others he knows. It’s a situation revealed in data from Ground Water Canada’s recent survey: 33 per cent of respondents have no plan in place for the succession of their well-drilling business. That is balanced against 36 per cent who expect their children to assume control, while another 20 per cent say their children are unlikely to take up their business.
The problem is not unique to well drilling.
Corinne Pohlmann, senior vice-president of national affairs for the Canadian Federation of Independent Business, refers to a national survey that found that, prior to COVID-19, about 72 per cent of business owners wanted to exit their business within the next 10 years, mostly to retire.
“It’s an aging demographic,” Pohlmann says. “We’ve calculated that that equates to about $1.5 trillion in assets that would have to be transitioned to a new generation.”
COVID-19 may add pressures. “When times get tough, some of those plans can get delayed, so COVID may have pushed that off a little bit, or because of COVID, depending on the industry, it may have sped it up,” she says.
Surely, after dedicating your life to your business, it’s reasonable to expect some benefit. But there are barriers that relate to the evolution of the industry.
Why is it so difficult?
K.C. Craig Stainton, executive director of the Ontario Ground Water Association, offers some insightful perspective on why succession plans are so hard to grapple with in the well-drilling industry. He sees farmers facing the same issues.
“Around the early 1900s, the rural folk were dealing with a way of life where these big old farmhouses often housed three generations of the same family. No money exchanged hands in inheritance. The older of the generations just assumed their children and their grandchildren would look after them and, with that, came the understanding where the kids just inherited everything,” Stainton says. “There was no worry, no concern about accumulating enough cash, putting it down on paper, getting it all worked out for the next generation to take over. And that’s not so much how it works today. Very rarely does it work that way.”
Grant Boadway concurs. “It goes back into the farmer’s style, when you’ve got big family farms and, a lot of times, when the family has taken over the farmhouse, the original farmer moves off onto another lot and retires there,” Grant says. “But he’s always in the background, he’s always on the scene, because once you have that interest for that many years, it’s pretty hard just to walk away and shut it off.”
“It’s not easy to sell a business when the owner is sometimes 50 per cent of the value of the business, because they have the skills and the knowledge to properly run it.” –Corinne Pohlmann, CFIB
Those who do exit the business need a source of retirement income – and that income may be tied to the business or to the value of the equipment.
“I have heard of struggles in succession planning where the older generation ¬– the one that has ownership of all the equipment, the business, everything – wants to pass it to his son and his son wants to have it, but all of the father’s savings for his retirement, everything he has, is tied up in that equipment and that business,” Stainton says. “That means the son has to go out and independently come up with the cash to buy out his father, or they have to come to some kind of agreement, and it can become very complicated.”
Complicated indeed: many people still balk at the idea of formalizing family transactions, and it’s not always an easy topic to bring up over the dinner table.
Other agreements are less challenging. Roger tells the story of one family, wherein the father received a new Cadillac every three years. “It also depends on the individual parent,” he says. “A parent might say, ‘Oh, well, I’ve had my day, see what you can do with it.’”
But whatever agreement is reached, it has to begin with a discussion.
“We know about 25 per cent want to sell to family members, another one in five wants to transfer [give] the business to their family members,” Pohlmann says. “But first of all, you have to communicate that to your family members early on.”
As far as transferring a business from one generation to the next goes, Roger says it isn’t that challenging. “Because with all companies that are registered companies, you have shares in the company, and the family just purchases shares over a period of years,” Roger says. “Or the owner of the company might give, each year as a bonus, a thousand shares depending on how many shares are there. And so that way, it’s a very easy takeover.”
An advantage when family members take over is that a transition period can take place, often with years of overlap and shared experience.
But what if no one in the family wants the business or is qualified to run it?
“Then obviously you have got to look for other options,” Pohlmann says. “It can be anything from trying to find a third-party buyer or an arm’s-length type of buyer, which is where most people end up going. And it can be anything from a total stranger to an employee or management buyout or it could be a larger company taking over.”
Selling the business
One of the biggest challenges in selling a business is finding a buyer.
“It is not easy, and it sometimes can be quite expensive because you don’t necessarily want to advertise to your employees and to your suppliers and to your customers that you’re trying to sell your business,” Pohlmann says. “It has to be done a bit more discreetly.”
She says there are better tools today than there were in the past. “It used to be you had to go to a large consulting firm who would then manage that all for you, and that can cost quite a bit of money,” she says. “But now there are more organizations out there that are trying to help at a lower cost to find suitable buyers and successors for small firms knowing that so many of them are looking for ways to keep their business going.”
Another big barrier is figuring out the value of the business. “It’s not easy to sell a business when the owner is sometimes 50 per cent of the value of the business, because they have the skills and the knowledge to properly run it,” Pohlmann says.
The Boadways are a case in point. “One of the biggest challenges is training people on how to do it in our specific area,” Roger says. “We’re in an overburdened area where we’re dealing with a lot of very thin aquifers. In some areas, we have to set our casing within one inch to have clean and potable water – within one inch. And as soon as that drill bit goes out of sight, you’re in the dark. From then on, it’s a learning curve that you’ve learned over many years.”
Provided you can find someone willing to learn. “It’s a whole different era and a whole different society. It’s hard to find somebody that wants to get their hands dirty, Monday to Friday, 45 hours a week,” Grant says. “It’s 4,000 hours to be a class 1 driller, which goes by fairly quick within a couple of years of training somebody. But then afterwards, you have to be able to afford new equipment so you can send that person you just got trained and licensed off on their own and get themselves another helper in the field.”
Of course, selling to another well-drilling company is a possible option: recent examples include the growth of Friesen Drillers and Aardvark Drilling’s equipment purchase from Gerrits Drilling and Engineering.
Yet another option is shutting the whole business down – a difficult decision too if you, and possibly generations before you, have devoted your working life to your venture. Still, more independent businesses are choosing this route – about 15 per cent of small businesses, according to Pohlmann’s figures.
Selling to employees
A further option is attracting increasing attention: selling to employees. Grant Boadway says the employees they have now are “number 1 guys.”
“Our guys have all been with us for 10 years plus,” Grant says. “We get good compliments from our customers, and your employee is a reflection of the company. And they do fantastic work. They’re bang on: we don’t get call backs, and, if we do get a call back, we always address it immediately.”
Roger concurs: “We have really good employees right now. And they’re young, in their 30s and 40s. And I’ve said to Grant, maybe when we’re done with it, if there isn’t a sixth generation, maybe the name might go on through the employees buying the business. But it’s a very hard call at the present time just which way it’ll all go.”
It is also a big decision for the employees. At Haliburton Artesian Well Drillers, Jake Woodward and Dave Walker are both former employees who are now co-owners. Rick Ruttig, who started the business in Haliburton, Ont., in 1989, sold Woodward and Walker the business in March 2019, but discussions started more than four years before. Ruttig remains active in sales and site inspections for the business.
“Both of us [Woodward and Walker] live here full time and know all the contractors – everybody we worked with before we purchased the company,” Woodward says. “The only thing that changed is that I am now doing the scheduling and talking to all the customers directly.”
Woodward adds that a transition to ownership like theirs would be difficult if they weren’t from the same town or situation and didn’t have the drilling background or experience.
“My parents actually own a place called The Pump Shop in Haliburton, so I was born around wells and pumps, so that played a part in it, too” he says.
He says the business transition was fairly straightforward. “It definitely took some time to decide on some final numbers, and structuring the financing took a little bit of time,” he says. “We dealt with BDC and also the HCDC, Haliburton County Development Corporation.”
While Woodward and Walker were able to make a down payment, Woodward says financing can be challenging for some.
“Something that might make it easier for some people, and some people might be more open to it, would be vendor-takeback structures, like the owner of the company holds a part of the mortgage for the company, so the buyer doesn’t have to come up with as much – like a private financing situation,” Woodward says. “I think more sellers should be open to creative financing. That would help out the buyer a lot more.”
The Canadian Federation of Independent Business has a Succession Planning Toolkit available as a free download. The association’s website also includes a section called “Succession Matching” with links to various services specifically created to help small businesses find buyers at more affordable rates than large corporations offer.
Having Ruttig still involved with the company also helps: he deals with customers, oftentimes on weekends, which allows Walker and Woodward to be actively drilling.
“It’s definitely been a learning experience as well. It’d be nice to have a helper to free up some time for myself to work more on the company and less in it,” Woodward says.
He offers some tips to anyone transitioning their business, whether to family members or business partners.
“Do job descriptions before and be very black and white with your partner about what role each plays,” he says. “And even before the purchase has been done, lay out goals, where you want to be in one year to, say, five years. I think setting goals is a really crucial thing with buying a new company.”
He notes that with baby boomers retiring and selling businesses, selling to employees is going to be more common. “There are so many opportunities, not just in drilling, but in small businesses all over North America.”
Whichever way a business owner decides to go, time is needed to sort it out properly.
“It’s so important when you’re looking to exit your business that you start that process, not just six months in advance, but years, like three to five years in advance, so you can find a suitable successor, start the training process, and make sure the handover is smooth,” Pohlmann says. “You can’t do that in six months.”
Beyond the individual businesses is the worry about the future of the industry. “In the London area, there once were six active well-drilling companies and it’s now down to two,” Stainton says. “The underlying trend is that we are losing more well-drilling companies every year. We are not even maintaining the status quo and that scares me as we look 20 years in advance.”
Roger Boadway shares that concern: “It’s a dying trade in that you’re not going to have people that are going to be able to go out and even refurbish a lot of wells in 10 to 20 years. And if there isn’t somebody there in 10 to 20 years, it’s going to be serious, because they can’t run a pipeline to everybody in the country. They just can’t.”
Cost aside, quality of pipeline water is also a growing concern for many, and it is hard to imagine a future without properly maintained wells.
Carolyn Camilleri is a Toronto-based writer, editor, and content strategist. She has been writing for consumer and trade magazines, as well as businesses and organizations, for more than 15 years.
Print this page