I’ve been taking a look back at recent deal flow, up to and during the Summer, for clues as to what’s possibly driving the upturn in business sales that I am seeing across the board.
There has been a marked upturn in sales of businesses as business owners mindful that there may be changes to Entrepreneurs Relief, combined with a healthy pool of potential buyers looking to invest in Scottish companies are helping to maintain a strong market.
Interestingly, deal making remains buoyant despite the disruption that is likely as Britain enters Brexit negotiations. The short term prospect of Scottish independence would appear to be fading, so that is also probably a key factor encouraging strong demand from buyers to acquire businesses based in Scotland. Sectors drawing most interest of late have included business services and healthcare.
We are seeing a number of unsolicited approaches being made directly by buyers to business owners, which is another sign of a strong market. The buyers are both trade and mid-market PE houses, and are not just based in the UK, but also in Europe and the US, the latter helped by the fall in the value of Sterling. Buyers are doing their homework, will look to develop a relationship with the business owners, and are often willing to pay a premium for having exclusivity on the deal.
This is a healthy deals market, and business owners wanting to exit should really bring forward their plans, and invest time to ensure that their businesses are presented in the best light. Entrepreneurs Relief remains with us, but a government review is underway, and for a Chancellor looking for cash at every turn, it could become a relic of corporate tax history.
Growing demand for strategic planning to drive growth and sales
There is a significant move towards strategic planning as boards and shareholders are increasingly investing in planning to improve performance and maximise the appeal of their business.
While the ultimate goal might be a business sale, the strategic planning process can also be used to ensure the business is ‘investor ready’ as well as generating better returns from trading. However, becoming more ‘strategic’ can also create challenges for the owner managers as they grapple with cultural and organisational changes as the business grows and moves from being an owner managed SME into a small corporate.
These changes are an essential part of the business evolving to a more corporate structure run by a senior management team with the processes and infrastructure needed to take it to the next level. Becoming more investor attractive does not mean being less entrepreneurial, it just means the entrepreneur is being supported in all the key areas that need addressing in a growing business.
The MBO is looking good as PE houses hunt deals
Looking ahead for the next few months into early 2018 we are likely to see more management buyout (MBO) activity. This is going to be driven by PE houses like Maven, NVM, YFM, and Mobeus, who have all recently raised buyout funds as a result of recent rule changes, which meant VCT funds could no longer be used to invest in MBOs.
The buyout funds are now in place and these PE houses are out looking for new opportunities, actively marketing themselves, meeting companies and seeking to back entrepreneurial management teams with their funds and expertise.
Happily Oil and Gas is showing some early signs of recovery, but transactions in this sector are challenging to progress and complete. A sharp upturn in the sector is highly unlikely, rather a more gradual improvement in M&A is more likely.
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The information in this blog should not be regarded as financial advice. This is based on our understanding in October 2017.