26/04/2011

By Neil Worsley, partner at Corporate Finance adviser to Entrepreneurs, Ford Campbell

Over a third of British private businesses will be targeting growth through acquisition over the next three years, making it the perfect time to realise the value of a business.

Time to sell?

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, amongst other factors.

Who’s who?

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 it changes 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 (merger and acquisition) 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’.

Business owners should not restrict their attention to within the UK. International buyers, particularly from the USA and Asia, increasingly look 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.

The decision to sell is one of the toughest decisions for a business owner to make. 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 future potential. The most obvious trade buyer is a competitor who already understands the market and can quickly gauge the benefits of the acquisition. However, this is unlikely to achieve the maximum value for the business and there are other avenues that should also be explored before making that difficult decision.

With cost pressures on the rise and firms under scrutiny to improve turnover, vertical buyers from the supply chain, and horizontal buyers operating in markets or offering complementary service lines can be valuable sources of potential suitors. Acquisitions of this kind can often provide a great reward to the buyer and, as a result, the buyer is willing to pay a strategic premium for the business.

Timing is everything

One of the most important factors in maximising the value of a business is timing. Most businesses have some degree of cyclicality, either in the long or short term. Understanding the macro-economic fundamentals of your market and where your business sits within that landscape allows you to take advantage of opportune market conditions.

However, timing should not be restricted to factors within the corporate world. Business owners need to look after their own objectives, ambitions and futures. The ability to navigate the recent changes to capital gains legislation, entrepreneurs’ relief and pensions can have a monumental impact on the value that the founder of the business will receive once the sale of the business is completed.

Selling a business is not easy and will take time, patience and a lot of coffee. Entrepreneurs deserve to realise a significant gain for the blood, sweat and tears that they have shed in the development and successful growth of their business. The important thing to remember when considering any potential business exit is to take the time to prepare both yourself and your business properly. Ask for advice and work with an adviser who you trust. It could be the difference between making the best and worst decision of your career.


Watch the video below featuring Claire McClay, Sales Account Manager at Sage discussing top selling and sales technique that work in a business

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