October 10, 2017                     Next Issue: Tuesday, October 24
In this issue :
Business Owners: Poison Ivy and Wolves at the Door! 
and 9 news article commentaries
relevant to transition and valuation.

Business Owners: Poison Ivy and Wolves at the Door!
Ian R. Campbell, Business Transition Counsel Inc.
In This Issue
Over the past forty-eight years I have had complex interactions with business owners and their professional advisors on the topics of business valuation and transition. By and large I have found those interactions educational and - as might be expected from any large sampling - sometimes surprising and disappointing.

There are always exceptions to generalizations. That said, this commentary - based on my experience to date with business owners and their advisors - somewhat randomly summarizes what I believe to be a number of business owner and advisor characteristics important to business transition.

This commentary includes a story about poison ivy. However, the title goes further to include "wolves at the door" - and by inference other dangerous traps, venomous creatures and beasts that inhabit the ever-changing forest that business owners and their advisors walk through each and every day. This where the unsuspecting, uninformed and unarmed travelling in that forest - and in fact we all are doing that - run a serious risk of being harmed or worse.

Failure to emphasize and practice "Family Business First"

When it is put to them I find family business owners generally understand the reasons that in the current environment they need to put their family business - the proverbial goose that lays the golden eggs - ahead of individual family member self-interests. For many family business owners that seems to be a concept that is easily understood. However absent hard times or third party shareholders one they typically do not systematically and consistently put into practice.

Going forward I believe things will generally get more and more difficult for many businesses, and that  ..... 
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News Headlines, Article Links, Curation
 Ian R. Campbell, Business Transition Counsel Inc.

In the past two weeks the following articles relevant to Business Transition and Valuation have been selected from a population of approximately 5,000 articles.

Selected articles and curation comments are organized under the following headings:
Business Transition News, Business Valuation News, Technology News, Economic News, and Financial Markets News.
Please forward to a friend or colleague!

Business Transition News

Comment: As all Canadian business owners and their advisors almost certainly know Canada's federal government earlier this year proposed federal tax changes that many observers maintain will penalize those who want to generationally transition their businesses.
This is fine as far as it goes, and the complaints by business coalitions and advisors may well lead to the Canadian Federal Government softening or otherwise making changes that blunt their current outstanding proposals.

But know this. Even if changes are made to the proposals that pacify business owners and their advisors now, to some degree that is likely to be just another "kick the can down the road" event. This is because it seems obvious that at some point governments at all levels (federal, provincial and municipal) all will have to find funding for existing and growing deficits.

Business owners need to plan ahead for this. We increasingly seem to live in a world of immediacy. It is important to get the binoculars out and think ahead in the contexts of business transition and business value. Both those things are long-term exercises.
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There have been 273 mass shootings in the US so far in 2017 - here's the full list. Reading time 3 minutes, thinking time longer.   Business Insider, October 2, 2017.

Comment: So why is an article on mass shootings in the U.S. included in this Newsletter under the heading Business Transition? Because as I see things it follows directly from the previous article that suggests going forward business owners will face incremental income taxes and other levies both personally and in their businesses as governments at all levels scour all potential sources of funds in order to pay meet their unfunded obligations.

The October 1 Las Vegas country music festival shooting is just the latest, albeit the largest, mass murder. While horrid, it is highly unlikely to be the last U.S. mass shooting in what unfortunately is becoming in the U.S. almost a daily event. It is easy to argue that these events - which seem to be recurring incrementally in many countries - is a form of economic death by one thousand cuts. This where each mass shooting - or other terrorist or non-terrorist attack - puts increased pressure on governments, law enforcement departments, fire departments, emergency responders, medical facilities and businesses to step up spending on prevention and control mechanisms. In the end those escalating costs are being, and will be, borne by those who have more than those who have less. The case to be made is simple, the solution far less so.

The referenced article adopts a mass murder event definition as being "a single incident in which four or more people, not including the shooter, are shot and/or killed at the same general time and location".

The data adopted by Business Insider in the referenced article can by found in the U.S. Gun Violence Archive. That website reports so-called mass shootings in the U.S. as 274 in 2014, 333 in 2015, and 383 in 2016. The website includes interactive maps and detail of other categorized U.S. gun violence incidents.

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U.S. slaps steep duties on Bombardier jets after Boeing complaint. Reading time 6 minutes, thinking time longer. Reuters, September 26, 2017.

Comment: Readers are likely to be familiar with the "preliminary" 220% anti-subsidy countervailing duties imposed by the U.S. Commerce Department on September 26, 2017 on the 75 CSeries jets Delta Airlines ordered from Canada's Bombardier Inc. in April 2016.

Aside from questions as to the timing and what may or may not turn out to be the enforceability of these duties, business owners and their advisors might do well to consider:

1.    whether President Trump had a meaningful influence in this Commerce Department action.
2.    whether this action is representative of "more to come" when there likely are contagion issues attached to such action where "the globalization horse has long since left the barn and continues to run ever further away from it".
3.    how much is this Commerce Department action likely to influence the currently ongoing NAFTA negotiations.
4.    the consequences of this action in the context of the negotiation of international business contract negotiations generally.
5.    the extent of incremental risk a general  "American first" policy may have on international trade relations, international business deals, and on the world and country-specific economies.

One might wonder how far from source Mr. Trump's screams would be heard - and how many lawyers he would have hired by now - if he were the President and principal owner of Bombardier and not the President of the United States.

Once again, if you are a business owner you might consider that it is better to be prepared for a storm (i.e. continually work to strengthen the balance sheet of your business) than wait until the last minute to try to buy and install hurricane shutters. This where Home Depot might be out of stock if you are late to the party.   
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U.S. core capital goods data underscores economy's strength. Reading time 3 minutes. Reuters, September 27, 2017.

Comment: Donald Trump continually talks about "fake news". That term suggests "made-up" or "wrong news". I suggest a better term would be "incomplete and potentially misleading news".

As but one example, a recent Reuters article suggests enhanced U.S. capital goods spending by businesses underscores the strength of U.S. economic strength at a point in time. That may be a perfectly reasonable short-term perspective. However, to the extent increased business spending on capital goods results in installation of technologically advanced equipment unemployment may increase in the near- and longer-term. That presumably would impact consumer spending negatively and in turn result in lower gross domestic product numbers than otherwise might be the case.

The referenced article makes no mention of such a thing. Is that bad reporting? The case can be argued either way. But without discussion of all possible important possible contagion results of (in this case) increased capital spending by businesses a simple conclusion drawn from a single statistic may prove to be significantly misleading. Recall that business valuation and successful transition are both based on long-term outlooks, not short-term statistics.

Hence business owners, their advisors and everyone else need to work to "fill in the blanks" when they read or listen to media reports.   
Business Valuation News

Catalonia's separatists claim victory after violent day. Reading time 3 minutes. EU Observer, October 2, 2017.

Comment: Catalonia authorities are reported to have said over:

1.    42% (2.2 million) of presumably possible Catalonian voters voted in an October 1 non-binding referendum declared illegal by Spain.
2.    90% voted for separation from Spain amid disturbances between voters and police that saw a reported 800 people injured.

Catalonia, located in Spain's north-east, consists of four of Spain's fifty provinces. It hosts just under 5% of Spain's population. In 2016 the region accounted for about 20% of Spain's GDP. Measured by nominal GDP Spain is the 19 country Eurozone's fourth largest economy and the fourteenth largest economy in the world.

A question might be whether as things unfold: could Catalonia be a proverbial "canary in the coal mine" in the context of being a "snowflake that starts and avalanche".

It seems certain there will be more to come on this.

Why is this commentary included in "Business Valuation News". Because I am far from certain all persons giving business valuation opinions integrate significant world events in their long-term risk assessments - but rather simply assume all world events are incorporated in available statistics consistent with the efficient market theory some people - not necessarily business valuators - apply to world equity market activity.  
Technology News
No technology news articles are included in this issue of the Business Transition and Valuation Review. 
Economic News 

Comment: This article reports on a recent U.S. Consumer Financial Protection Bureau survey of over 6,000 adults said to be representative of the U.S. population. The survey is reported as saying:

1.    43% of respondents are experiencing difficulty paying their monthly bills.
2.    over 33% of respondents have experienced "financial hardship" within the past year. This where "financial hardship" is taken to mean "running out of food", "falling short on rent" obligations, or "not being able to pay for a medical expense".

One can only wonder as to whether there is a disconnect between U.S. consumer spending statistics/indexes and U.S. main street reality.
When considering this possible disconnect you might want to read  

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Here's why the US's $20 trillion debt isn't that big of a deal. Reading time 5 minutes.   Business Insider, September 18, 2017.

Comment: You might want to read this article an reach your own conclusions as to whether U.S. Federal Debt, now north of $20 trillion, is or is not a big deal.

It seems the author of this article believes it is not a big deal to find yourself in a field of quicksand so long as everyone else standing in the field has sunk deeper in the quicksand than you have.

To put a trillion in perspective, 20 trillion miles would take you to the moon and back 40 million times.

Not only is the quantum of accumulated U.S. national debt a big deal, so are the much larger U.S. federal government unfunded liabilities estimated at September 2016 to be about $70 trillion. These unfunded liabilities include:

1.    Federal government employee retirement benefits, accounts payable, and environment related liabilities ($8.5 trillion).
2.    Social security related obligations ($29.0 trillion).
3.    Medicare related obligations ($32.9 trillion).

See National Debt and   Global debt is around 3 times the size of the world economy - and it shows no sign of slowing down.     
Financial Markets News
Why Roku Shares Doubled 2 Days After the IPO. Reading time 3 minutes, thinking time longer. Fox Business, October 3, 2017.

Comment: If you have concerns as to the veracity of the current equity markets you should read this article and the three articles referenced at the bottom of this commentary. On Thursday, September 28 Roku - vendor of "streaming TV & media players" - completed an IPO based on a U.S.$1.3 billion valuation ($14 per share for IPO proceeds of $252 million). This where Roku is reported as having had revenue of just under $400 million and a net loss of just over $40 million in 2016.

On Friday, September 29 (post-IPO) the Roku stock reached a high of just under $30 per share. It since has fallen back, closing on Tuesday, October 3 (its fourth trading day) at just under $21 per share.

All of this where the referenced Fox Business article, which includes interviews with three "market commentators" all of whom I suggest can be described as far from enthusiastic about Roku's business prospects. That said, one of the three goes so far as to say "I do think the IPO was underpriced", which statement for me seems inconsistent with the rest of that individuals reported comments.

It seems to me one can legitimately wonder at Roku's IPO price and first four days market activity - and what the implications are for the broader equity markets.

Also see: Roku closes up 67% on first day of trading. Reading time 2 minutes. CNBC, September 28, 2017. Roku shares are tumbling this week following their post-IPO rally. Reading time 2 minutes. CNBC, October 3, 2017. Short sellers have put a target on Roku and are clamoring to borrow shares. Reading time 2 minutes. Business Insider, October 3, 2017.

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The stock market has been flipped upside down. Reading time 3 minutes, thinking time longer. Business Insider, September 27, 2017.

Comment: And to at least September 27, 2017 the U.S. equity markets continue to ascend ever higher. This article shows percentage returns of eleven S&P 500 sectors (1) 2017 year through August, and (2) September month-to-date.

I speak frequently with people I consider "market knowledgeable". I have yet to hear rational reasoning that supports this continual uptrend. If you participate in the equity markets I suggest you have regular discussions with your financial advisors on the state of the equity markets and their near- and longer-term prospects.
Newsletter Contributors
Ian R. Campbell is the principal contributor to this Newsletter. He has given business valuation and transition advice to both public and private company owners for over 40 years. Other contributors are experts in business transition or specific disciplines relevant to business transition and valuation. They take part in Q&A sessions posted on
Newsletter content ('Content') does not constitute individualized business transition, valuation, economic or investment advice. The ideas, views and opinions expressed in the Content are solely those of the authors/contributors. Provided 'as is', Content may change without prior notice, may be incomplete, inexact, incorrect or jurisdictionally specific. It is used at the reader's own risk.