Anyone watching the news recently cannot avoid the general feeling of doom and gloom. The collapse of the Euro. Inflation at five per cent.Minimal economic growth. In the face of these factors, business continues to be challenging.
But is the fact that the economy is not growing is relevant to your business” I would suggest that the answer has to be NO!
A client recently stated that he can’t waste time bemoaning the global economic crisis and the fact that funding is more expensive and restricted as all these factors are outside of his control. Every business faces tough decisions but those that are successful identify and actively manage factors that are in their control.
In the past, many businesses achieved success without having to try: sales were easy to achieve and profits and cash were generated.
In 2008, things changed and since then we see continued pressure on margins and people chasing sales. Business owners have to work harder to seemingly stand still. In the face of these pressures, you need to be as efficient as possible and manage your costs. What are your aspirations and how can you ensure that each decision you make is a step towards those goals?
The continuing economic turmoil is leading many business owners to consider their next step. As the days of high multiples and inexpensive bank debt are long gone, our experience suggests that vendors need to be open minded when looking at transaction structures. Many deals are being completed that include higher proportions of deferred consideration and therefore in order to generate value advisers have to look away from the straightforward and deliver innovative deal structures.
Transactions are now likely to include deferred consideration, share options, loan notes, earn outs and deferred purchase. Comparing offers with a mix of consideration takes skill with the focus on long term value at the expense of short term certainty.
Uncertainty and caution will continue to suppress the transaction market but we expect to see a steady flow of deals, however to secure the deals, vendors have to be open-minded.
This year, the economy will continue to present challenges. How can you end the year in a stronger position than when you started
Steve Bell is head of corporate finance at Hart Shaw.