With buyers willing to pay good multiples for solid, quality businesses, it is a seller’s market for those that can demonstrate strong financial performance and growth prospects.
However, corporate acquirers are now thinking more strategically than simply looking to make a quick buck and are keen to build scale, enter new markets, gain access to lower cost operations and acquire new technologies – among other factors.
Before looking into what drives the value of a company, entrepreneurs must understand the types of businesses that will find them an attractive proposition. While private equity experienced its heyday in the noughties, the asset class is undergoing a period of change, as its hifts its business model away from debt-fuelled buyouts.
In the meantime, trade buyers have re-emerged as the most likely source of interest for M&A activity. Some markets have performed exceptionally well over the past couple of years and have built up surplus cash and funds for an acquisition war chest.
Don’t restrict your attention to UK businesses only. International buyers, particularly from the USA and Asia, are increasingly looking to take advantage of low interest rates and the weak sterling to snap up assets and companies at attractive prices, but also gain a foothold in the UK market.
It goes without saying that the decision to sell is one of the toughest calls for a business owner to make and, having invested a great deal of time and money into the business, it is essential that it is passed onto safe hands and to a buyer that understands the business’s future potential. The most obvious trade buyer is a competitor, as it would already understand the market and can quickly gauge the benefits of the acquisition. The downside is that this is unlikely to achieve the maximum value for the business. It’s important that you investigate the many other options available to you.
With cost pressures on the rise and firms under scrutiny to improve turnover, vertical buyers from the supply chain, and horizontal buyers that operate complementary service lines or markets can be valuable sources of potential suitors. Acquisitions of this kind can often provide a great reward to the buyer and as a result, ensure that a higher value is placed on the business.
Bide your time
One of the most important factors to maximising the value of a business is timing. Most businesses have some degree of cyclicality, whether it be long or short term. By understanding the macro-economic fundamentals of your market and where your business sits within that landscape, you can develop a good sense of when the time is right.
But timing shouldn’t be restricted to factors within the corporate world. You also need to look after your own objectives, ambitions and future. The ability to navigate the recent changes to capital gains legislation, entrepreneurs relief and pensions can have a monumental impact on your reward once the acquisition is complete. Study up. Know your stuff.
Ask for help
Selling a business is not easy. It will take time, patience and a lot of coffee. Entrepreneurs deserve to see a great return for the blood, sweat and tears that they shed and maximise the value of the business. There is no shame in asking for advice and surrounding yourself with people that care for the business’ future. It could be the difference between making the best and worst decision of your career.
Neil Worsley is a partner at Ford Campbell.
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