In the ten months to 31 October we have seen over £2 trillion of reported international M&A deals (source: Zephr) with just under 6 per cent (£126 billion) involving a UK target company.
Of these transactions, 45 per cent were in London, 23 per cent were in the South and 10 per cent were in the Midlands. These transactions have varied from international acquisitions, mergers of like-minded companies, vertical integration-led acquisitions and, over the past few years, an increase in management buyouts.
SME business owners need to keep an open mind when looking at options for sale. Acquisitive companies and individuals can come in all shapes and sizes.
This year the most active sectors by volume of deals are financial services (30 per cent), technology (15 per cent) and support services (14 per cent).
We are predicting that among those sectors who will benefit from an uplift in private company M&A in 2016 and 2017 will be those who straddle multiple sectors, such as fintech and support services.
We are also seeing a significant increase in activity among diverse sectors such as logistics and technology, as businesses look to gain market share and attract clients who they may have previously struggled to service.
This uptick in activity is on the back of UK companies raising over £20.3billion in debt and equity so far this year, up an impressive 42 per cent on the same period last year. While UK acquirers have lagged behind their international counterparts in recent years, this rise in capital could lead to an increase in acquisitions by UK companies, both at home and abroad.
So how can business owners ready themselves and their businesses for a sale in 2016 and 2017?
We spoke to a number of Moore Stephens clients who recently made successful exits from their businesses, and asked them what advice they would give business owners planning on selling their businesses.
Our interviewees felt that you must understand your long-term plans before you embark on the process. Do you want to remain with the business for a while, retire entirely or set up something else in quick succession?
Emma Statham, who sold her business, MSA Market Media, to British Growth Fund-backed Four Communications Group Ltd, found that “good advisers can help you draw out the truth about your plans”.
It is also important to start thinking about the transaction as early as possible. Chris Featherstone and William Anthony led their MBO of Knight Group, a civil engineering, groundworks and property development company in 2010, and earlier this year transitioned part of the business on to the next generation management. “Our plans had to start as soon as we became owners, although the time-frame for a sale was not fixed until the end,” said Chris.
Knowing whether an MBO is the right choice can be difficult and depends on the type of team you have within the business. Chris Featherstone knew “that an MBO was right, as the business was going to benefit from the stability of new owners who were familiar and committed to the business.”
Some company owners worry about selling to an international competitor. However, as David Grosvenor, CEO of WeSupply Ltd, who together with his financial backers LMS Capital sold to global competitor HighJump Software Inc, found this can create opportunities. David Grosvenor has stayed with HighJump. “It is great to see our services being rolled out to customers worldwide thanks to the sale,” he said.
Many company owners are surprised by the continued emotional attachment to their businesses, even after the right purchaser has been found. Emma Statham has stayed with Four Communication. “It is like watching your children go to school,” she said. “You want to see them succeed.”
Staff are an important consideration of any sale process. David Grosvenor has also found that “a great aspect of the sale has been the opportunity it brings for career progression for the team who have been critical to our success.”
So what can business owners learn from others as they plan the sale of their businesses?
- Be clear about what you company stands for.
- Remain flexible and open to challenge by your fellow directors and advisers.
- Find the right advisers for you; you will work closely with them over the transaction and you have to trust their judgement and feel they are part of your team.
- Plan early. Make sure you have a good second-tier management team in place.
- Make sure you understand the tax impact of a sale. A lot of planning needs to be done at least a year prior to a sale to be effective.
- Never underestimate the time it takes to plan and execute a sale.
We believe the market is good for most businesses looking to sell, but would also recommend business owners carry out a three-step spring clean of their business before they embark on a sale.
- Ensure strong underlying financial management. Trade within your means and undertake pre-transaction due diligence to identify areas within the financial structure of your business which could be improved.
- Tidy up your group structure. Ensuring any dormant or non-trading parts of the business are properly closed through a group simplification exercise which will make due diligence smoother, and may save time.
- Diversify your business. Any business which is too reliant on one product, contract or customer will cause a purchaser concerns when accessing value.