The next general election is scheduled for May 2022 (assuming we make it that far), by which time, the conservatives will have been in power for 12 years, therefore, the prospect of a Labour government coming to power with a strong “democratic socialist” agenda is very real – so what does this mean for high growth, entrepreneurial companies looking to exit within the next 5 years? Mike Lander attempts an answer.
The reality is, none of us can predict who will be in power, the political climate and what the economic conditions will be. However, what we do know is that if the agenda is focused on increased public-sector spending, one of the targets in the cross hairs to enable the Chancellor to start balancing the budget could be a raid on entrepreneur’s relief. Therefore, given the possibility of changes in the Political winds and tax implications, I believe we are likely to see an increased interest from majority shareholder business owners to sell their businesses with Enterprise Values below £10m (the article by Luke Johnson in the Sunday Times on the 29th Oct eludes to a similar possibility).
If this describes you and your business, you have a relatively short window to start preparing your business for sale (given that a transaction can take 6-12 months); therefore, the key things a buyer looks for in an acquisition target that you need to make sure are in place prior to going to market are:
- Credible senior management team: My father in-law, Stephen Clarke, who has been buying and selling businesses for over 50 years says this is his number one priority when looking at acquisition targets
- Clear USP: You need to be focused, differentiated from your competition, strong in defined sectors and countries, innovative and fill a hole in their current portfolio
- Contracted annual recurring revenue streams and/or have sticky clients: Having recognisable clients, retained over several years with low churn rate is a major value enhancer
- A well run and ordered business: Make sure your finances are in order, you have operational KPIs, contracts are kept on file, well managed cost base, etc
- >20% EBITDA margin: And, it needs to have been sustainable over the last three years and forecast to remain the same/improve
- Strong growth track record and forward forecast: >20% pa revenue growth (including 2-3 big wins pa) with the right kind of clients
- Strong, lasting, c-suite (and other) client relationships: e. CEOs, CFOs, CMOs, COOs, etc
- Innovation/Thought Leadership: Your company needs to stand out from the crowd as a true leader
- Talent within the business: You need to have a good mixture of breadth and depth in your teams, i.e. no single point of failure
- No dependency on the founders: And finally, given that the founders typically leave the acquirer within 2-4 years post deal, it is critical that you do yourself out of a job, ideally before you sell
If you are considering selling your business in the next few years, start preparing now to ensure when it comes to meeting potential buyers, all the right elements are in place to underpin a smooth process and avoid potentially damaging “chips” in price en-route.
Mike Lander, Director and co-founder of www.ensoul.co.uk , business adviser, Chairman and writer