First, it’s not all doom and gloom. I have seen far worse conditions than those we are currently experiencing in terms of a business sale environment.
Many vendors have held back selling their company for a variety of reasons, and this has meant that choices are limited for the acquirer. Any company with cash (there are more than you might think!) is struggling to find a home for it which pays a reasonable return, with UK banks not the safe havens they once were.
The private equity market has been all but shut for 18 months or more and is at serious risk of alienating its own shareholders if they don’t start investing very soon, and of course the spectre of predicted increases in CGT looms large.
The question is then; does such an appealing set of conditions create the ideal selling environment?
For those vendors whose acquirers have either tradeable paper or spare cash then the conditions may be near perfect. Alas for a debt based deal the vendor may need to take a more pragmatic view, not necessarily regarding valuation but certainly with regards the availability of a single cash out deal, with any form of bank debt being less likely than ever in 2010.
The barren M&A market will also give the shrewd business man or woman the chance to negotiate hard on professional fees. Many corporate lawyers have culled their departments and are seeking to maximise chargeable hours for those left behind. Where modest deal fees have been historically disproportionate, the chance to get fixed or contingent fees are far more likely as the professionals fight it out for the chance to secure the work.
So, should you put up your “For Sale” sign? Certainly, if for no other reason than deal times are now longer than ever in this “risk averse” new decade. Expect your sale to take up to nine months or more, so the sooner you get to market the sooner you should be able to exit it.
Jo Haigh is head of corporate finance at ATF Group, and is speaking at the company’s upcoming conference: “An entrepreneur’s guide to buying and selling businesses”. The event is being held at the Landmark Hotel on March 23, 2010. For more details, click here.
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