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Hungry buyers continue to drive business sales
During 2017, we experienced a marked upturn in company sales, as many business owners were mindful that Entrepreneurs' Relief could change as part of a Budget, coupled with a healthy pool of potential buyers looking to invest in Scottish companies, helping to maintain a strong market. Sales to management teams (Management Buyouts/MBOs) are also becoming more frequent again. Interestingly, deal making remains buoyant despite the disruption caused by Brexit negotiations. The short term prospect of Scottish independence would appear to have faded, and that is also probably a key factor creating demand from buyers to acquire businesses based in Scotland. Sectors drawing most interest of late have included business services, healthcare and specialist engineering.
I am seeing a number of unsolicited approaches being made directly by buyers to business owners, again demonstrating a strong market. The buyers are both trade and lower mid-market Private Equity houses, and are not just based in the UK, but also in Europe and the US, the latter helped by the weakness of Sterling. Buyers are doing their homework, have typically developed a relationship with the business owners, and are often willing to pay a premium for having exclusivity on the deal.
In my view, 2018 looks set to continue with a healthy deals market, and business owners wanting to exit should really think about bringing forward their plans, investing time to ensure that their businesses are presented in the best light, and that they have succession planning in place.
Growing demand for strategic planning to drive growth and sales
I have also seen a significant increase in demand for strategic planning advice and support, as boards and shareholders increasingly invest time in planning to improve business performance and maximise the appeal of their business.
While the ultimate goal may 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 a natural evolution of a business to a larger size, and the need for a more corporate structure, run by a senior management team, and with the processes and infrastructure needed to take it to the next level. Becoming more investor attractive doesn’t mean being less entrepreneurial, it just means the business owner is getting support in all the key areas that need addressing in a growing business.
Look out for our forthcoming client seminar in April on how to prepare your business for a future sale or investment, which Graham and a member of our specialist tax team will present.