Given the continuing uncertainty of Brexit, owners looking to dispose of their business could be forgiven for thinking that the brakes would have been put on any decisions by potential buyers resulting in a slow-down of business sale transactions.
However, that is not necessarily the case. Yes, there is some understandable caution amongst banks and investors, but this has only really resulted in lenders being a bit more stringent in their lending criteria. It does not mean the door has been shut completely. The following tips should help to ensure your business remains attractive to potential bidders despite these uncertain times.
Strategy: The general consensus amongst investors is that a buyer is more likely to go ahead with a deal which fits with its overall strategic objectives. For instance, a manufacturer of certain goods may be an attractive target to a distributor operating in the same market looking to build or increase its manufacturing capability. A business which “completes a jigsaw” for a buyer can remain an attractive proposition, despite challenging external circumstances. To that end, try to think about your business from the perspective of a potential buyer. Why would a potential buyer want to buy you instead of one of your competitors? What opportunities does your business present that you can emphasise? Which areas of your business need some TLC or modernisation in order to make you more attractive?
Personnel: Taking an objective, rational view of your business from a perspective of a potential buyer, do you have the right people working in key positions? Getting the right management team on board is key to steering your business in the right direction – both to achieve the financial performance necessary to catch the eye of potential buyers, and also to ensure that you have in place a management team with credibility and experience that will inspire confidence in those same bidders during any initial discussions or diligence process.
Modernisation:Is your business up to speed with the digital age? Do you have an online presence and up to date payment and delivery service methods? You don’t necessarily need to have a super-slick, cutting-edge digital offering, it depends on the industry sector you operate in; if you operate a retail company then yes you do, but if you operate a traditional B2B business then possibly not, but if you have taken steps to ensure that your business can adapt and operate virtually this will make it more attractive to investors, as it indicates future revenue streams and that less money will be needed post-deal to make the business fit for purpose.
Interim investment and control: Consider seeking development capital investment. This could help improve the scale of your business and its financial performance. Don’t be averse to offering equity in return for development capital or the hire of a key person. Whilst relinquishing some control can be daunting, it can sometimes be a hugely positive step which helps to bring in the key performers, funding and scale needed to steer your business towards a sale.
Scale: If your business is an SME, don’t assume that investors or buyers will not be interested. Small to mid-range deals actually account for the vast majority of M&A transactions. If your business is profitable and well-run, it could still be attractive regardless of its size.
Horizons: Finally, the comparative weakness of the pound at the moment could actually represent an opportunity, as it could represent better value for overseas buyers or investors. Therefore, it may be in your interests to look overseas as well as in the UK for potential bidders.
The Lupton Fawcett LLP Corporate Team have a wealth of experience in shareholder instructions at all stages of the business life cycle, from inception to exit. If we can assist you in any aspect of your business please contact Corporate Partner, Neil Large, or a member of the Corporate Team.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.