The year and a bit following March 2020 will be seared in our collective memory for decades to come.
For many business owners who get in touch with us, there exists a strong feeling right now that the events of these times have destroyed the value they’ve spent years built up in their companies. “I want to sell but now just does not feel the right time to sell”, many entrepreneurs tell us.
But our experience as one of the UK’s leading business brokers and M&A consultancy firms is different and we’d like to share with you why we see this as an opportunity for owners looking for an exit.
What the M&A market is like today for UK companies
Three quarters of companies involved in the M&A market expect to hit pre-COVID-19 levels of sales in 2021 with profitability returning to normal in 2022.
The actions taken by leaders during the crisis have transformed the businesses they run into much more agile and robust enterprises. They have successfully adapted to the unique operational, commercial, and strategic challenges thrown up by the pandemic.
They have taken advantage of government assistance schemes from low-interest loans to furlough schemes and, as a result, cash balances within many businesses are at record highs.
In many ways, it’s similar to the current state of the UK housing market. There is a wall of cash currently chasing a limited number of properties leading to significant levels of house price inflation.
And, from the work we’ve done in the last six months this situation is being mirrored right now in mergers and acquisitions.
In the UK, 57% of executives are actively seeking companies to either merge with or purchase. Nearly two-thirds of those executives are pursuing acquisitions which improve their company’s operational capabilities and efficiencies.
And, whatever your view on Brexit, the UK remains an important international marketplace and the country remains among the top three international destinations for overseas companies as they look to adapt to regulatory or trade changes and secure their supply chains.
The problem they all have, whether domestic or abroad, is a lack of on-market businesses to buy.
What sellers have to be ready for when taking their company to market
Across the market, the number of potential buyers enquiring about on- or off-market business opportunities is up.
There is increased interest in healthcare, warehousing, and technology companies – firms whose businesses have benefited from the changed environment.
Demand for hospitality businesses, retailers, financial services providers, and commercial real estate companies is slightly down.
No-one is quite sure how the economy is going to look one year after all restrictions have been lifted and buyers’ behaviours have been affected as a result.
For companies whose turnover and/or profitability has increased during the pandemic, expect greater scrutiny of your business’s performance prior to March 2020 as buyers look for a reason to reduce the price.
For companies whose turnover has suffered as a result of the COVID-19 disruption, expect buyers to be keener to use your financials over the past year and a bit to secure a lower selling price.
We’re certain that, had you been considering taking your company to market anyway, you already knew or suspected that this is how buyers would behave towards you.
But please do not let it be a reason to prevent you from putting your business on the market.
Why? Because, pandemic or no pandemic, buyers always look for a reason to reduce the price and to spread out their payments to you over as long a period as possible.
This is normal behaviour and it should not come as a surprise. So, if we were representing you, how would we handle it?
Managing buyers to obtain the most favourable outcome
We know that, as an experienced seller of businesses and negotiator, the biggest gulf in understanding between buyer and seller is always what a seller believes a buyer actually wants.
It’s not until you have been through the process of selling a business (or managing the sale of a business) that you clearly see that gulf.
The effect on behaviour and attitude this has is profound, particularly for sellers.
Company owners who want to sell get it into their head about creating a “perfect” business – one which a prospective buyer could not resist. This perfect business has a certain level of turnover, a high net profit margin, and an efficient, flawless operational structure.
They mistakenly think, in many cases, that a new owner will preserve their business in aspic for the rest of time because no-one wants to tamper with a “winning business”.
This could not be further from the truth.
After the initial handover period, the buyer will want to change a lot about your business. Rightly or wrongly, they nearly always believe that they’re a better businessperson than you and that they can take your business to a level which you were uncapable of.
So we implore you to forget, especially in the current climate, the notion of taking your business to market only when it represents “perfection to you”. A buyer won’t pay a premium for your business because you think it’s in its optimal shape.
Buyers like imperfection because, to them, this is an opportunity to add more value to their acquisition by imposing their methods, structure, and way of working onto your company.
The art of COVID-19 negotiation
Before the pandemic, we were one of the few business brokers and M&A consultancies to highlight areas for improvement within the companies we were selling to take advantage of buyers’ wishes to purchase businesses which they could add the greatest value to.
This is a consistent theme throughout our initial marketing of your business and when we’re negotiating on your behalf.
This approach leads to a large number of enquiries from buyers and it means that more of them stick with the process. The more of them who stick with the process, the better our opportunity of creating a competitive bidding window for your firm.
During COVID-19, this unique way of working has led to even better results for our clients.
If your business has benefited from the pandemic (and we can get evidence to support this assertion which, in most cases, we can), we highlight the fact that your company will have a bigger market share than before.
We sell your business’s heightened brand awareness in the marketplaces you operate in and the new accounts you’ve won.
Many buyers will often rightly argue that demand for your products or services may recede when everything is back to normal. When they do, we argue back that it is the quality of what you sell and how you deliver it which new and old accounts will come back for again and again.
Even if the market does recede, yours is a fundamentally better business than before and the opportunities to strengthen it under new ownership are even greater.
What about if your business has struggled? Then, other businesses in your sector have struggled and not all of them will have made it through to the other side like yours has.
We sell the reason why you’re still trading and the inbuilt strength and resilience of your business.
This strength and resilience will allow a new owner to capture greater market share because, when demand returns to normal levels, there’ll be fewer competitors to service that demand.
Start a conversation with us
You may strongly feel that your business is not in the right shape to take to market. There is a chance that you could be right. There could be merit in waiting another year or two to sell your company.
In most cases however, that won’t be true. The art of marketing a business for sale and negotiating with a buyer is finding the positive in what you consider to be the negative.
There is no “perfect” business to take to market and buyers don’t want “perfect” businesses anyway. There is no “right” time to get the price you want because buyers will always try to negotiate you down – they wouldn’t be very good businesspeople if they didn’t.
If now could be the time to realise one final big payday from your company by selling it so that you can move on to your next big project or onto the next phase of your life, start the conversation with IBA Corporate.
Our team have sold dozens of businesses in the past decade. We know what buyers are looking for. We know how to find buyers and provoke interest in them about the businesses we’re selling. And, to us, the opening up of the economy post-COVID-19 represents a real opportunity.
Please call or email us as soon as possible for an initial consultation.