Much of the macroeconomic news at present appears to be gloomy, so Directors/Shareholders would be wise to give serious consideration to the timing of any company sale. What is absolutely clear is that Deal Makers continue to face significant challenges as the cost of borrowing has increased in the face of rising interest rates and flatlining economies.¹

Despite this backdrop, there are a number of good reasons to feel positive about embarking on a company sale right now.

A Buyers’ Market

In some respects, economic conditions have triggered a buyers’ market, where investment opportunities, such as growth funding, mergers, or outright acquisitions become increasingly available. As a Deal Team, we are approached every week by acquirers seeking acquisitions and the danger here for business owners is that without negotiation expertise they are palmed off with low market valuations.

The cohort of active buyers includes acquisitive corporates, both UK-based and multi-national that seek buy and hold investment opportunities, particularly as hither to now the UK has always been seen to be a lucrative economy and a gateway to the Anglosphere, Europe and beyond.

Additionally, as revenues plateau due to stagnation and liquidity pressures, tactical acquisitions still present a good strategic growth opportunity and a means to competitive advantage in numerous markets. The recent high-profile cash acquisition of Slough-based courier group DX by HIG Capital LLC valued at £315m, is a good example, with HIG citing the company’s listed status was causing it to ‘continue to suffer from limited secondary market liquidity’.²

A number of financial investors are also actively seeking acquisition targets, including Family Offices, Buy Side advisory organisations, and Private Equity firms. A recent survey of PE firms indicated that maturing portfolios continue to demand further build-out activity or divestment, with further pressure added by an ever-present store of dry powder in need of deployment/investment.³

Market Drivers

As 2023 draws to a close there is much speculation about economic conditions in the first half of 2024. Forecasters point out that despite the ongoing effects of high interest rates, continued uncertainty and low productivity, the fear of a deep recession is largely dissipating, even in the face of challenging conditions for growth.⁴

For deal makers, there only needs to be movement in one or two key market features for transactions to progress. This includes greater macro-economic certainty, largely helped by fiscal and legislative measures by governments in advanced economies, in combating rampant inflation and through other stimulus measures.⁵

Activity in the Banking sector also has a role to play, where better debt availability will add momentum to deal flow. This one feature alone will impact deals more significantly than any other, as anecdotally a number of acquisitions have been significantly delayed or stalled altogether due to the requirement for debt financing.

This has meant that both deal makers and acquirers have been required to guide their clients toward more creative final deal structures. Cash on completion remains a feature, however, to close transactions sellers are being actively encouraged to consider deferred elements and earn-outs, before negotiating on other contingent elements to help deal transactions.

Focus on what you can control

Albeit wise to keep an eye on macroeconomic factors, for any business owner considering a sale, the absolute key to achieving a deal over the next twelve months will be to focus on the aspects of your business within your own control.

The central elements are good revenue visibility and strong margins, with good customer retention and limited vulnerability, a secure supplier base and a defensible market position. A focus on these elements of your business would be a good move. Ultimately, Stars, Cash Cows, Leaders, and Challengers will attract the attention of financial buyers.

Owner-reliance is one factor that can be both advantageous and a pitfall. For example, to attract growth funding you need a strong management team committed to staying within the business for an agreed period of time, to drive strategic plans forward and to deploy the investment funding.

Equally, a shareholder with the flexibility of a second-tier management team can choose to remain or depart from the company depending on the deal. Clearly, it is the task of the shareholders to choose to put a management team in place that can allow them to exit the company within a reasonable timeframe if that is what they choose to do.

Lastly, be as flexible as possible when it comes to deal structures. Although everything is negotiable, ultimately pragmatic solutions are the order of the day as opposed to getting stuck at an impasse, where neither buyer nor seller is willing to concede. Often the solution is to put yourself in the shoes of the other party, which can lead to the kind of all-party agreement that gets a deal done.

Notes:

1. S&P Global Credit Outlook 2023 https://www.spglobal.com/ratings/en/research-insights/special-reports/global-credit-outlook-2023
2. DX agrees £315 million takeover https://thebusinessmagazine.co.uk/corporate-finance/dx-agrees-315-million-takeover/
3. Peel Hunt Private Equity Survey https://www.peelhunt.com/media/1bbp14dl/peel-hunt-annual-private-equity-survey.pdf
4. UK Economic Outlook September 2023 https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2023/09/uk-economic-outlook.pdf
5. Peel Hunt Private Equity Survey https://www.peelhunt.com/media/1bbp14dl/peel-hunt-annual-private-equity-survey.pdf

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About Us

As a long-established premium provider of business sale advisory services to UK businesses, EvolutionCBS offers business owners a complimentary and confidential discussion on how their specific objectives could be met and provides pragmatic, practical advice on how to begin preparing both themselves and their businesses for a future sale.

EvolutionCBS works with owners of UK businesses in any sector, finding buyers from around the world through highly targeted research and supporting clients with dedicated Director-led teams, at every stage of their journey to a successful sale.

If you are an owner or shareholder of a business and would like a no-obligation consultation on the sale of your business, please email: info@evolutioncbs.co.uk  or contact us on Tel: 0118 959 8224.