Buying and Selling Companies in 2018: Have you missed the boat?
It has been acknowledged that SMEs are the heartbeat of this country’s economy representing approximately 99% of all UK private sector businesses. When people talk of small and medium sized businesses, there is a tendency to think of them in terms of the corner shop, whereas in reality the official UK definition includes enterprises which have turnover up to £25m, up to 249 employees and asset values up to £12.5m.
According to the Barclays Entrepreneurs Index, the mergers and acquisitions market for SMEs is at its highest level since 2011. The index looks at entrepreneurial activity from starting, growing and exiting a business.
Despite entrepreneurs enjoying wealth creation by 'cashing in' on the sale of their businesses, it has been acknowledged that opportunities to 'scale up' are not being taken with business owners more likely to make an early exit in the current market. The reasons for these trends are complex and there are differing factors affecting both buyers and sellers.
Why are business owners selling?
Some of the issues being raised with Blake Morgan's Corporate Team by prospective sellers include:
- A perception that the current government is not helpful to or supportive of SMEs;
- Long term uncertainty following the EU referendum;
- Concern that Entrepreneurial Relief will be removed or the tax rate increased;
- The increasing difficulty of obtaining the necessary finance to run and grow their business from traditional lending sources; and
- Anxiety regarding the increasing risk of running a business together with cumbersome regulations and a lack of succession in planning for the future.
Not all of these points apply to all businesses but they do go some way to explain why there are so many active sellers in the market.
Why are other businesses buying?
From the buyer side, Blake Morgan's corporate team has come across the following repeated trends influencing decisions to make acquisitions in 2018:
- The fall in the value of sterling has led to an increase in the number of foreign acquirers of British business as they look 'cheap' compared to opportunities in other countries;
- British PLCs and large corporates are looking at opportunities domestically as they look to increase their exposure to the UK domestic market prior to Brexit in March 2019;
- US economic growth has remained strong and as the top overseas buyers of UK small business this has increased the number of acquisitions; and
- Low interest rates have continued to keep the cost of debt low and maintained the availability of cheap funding.
All of the above points are contributing to a busy and competitive market place with buyers on the lookout for investment opportunities in UK SMEs.
One of the areas that lawyers, brokers and accountants always emphasise is that the more one prepares for the transaction in advance, the better the outcome in terms of price, timing and costs. There is a natural reluctance to undertake such work without a deal in place but those who do prepare reap the benefits and are far more likely to reach a successful conclusion.
For some people company transactions are an unknown quantity. Blake Morgan's Corporate Team specialises in this area of work and is not only able to deal with the legal requirements but also engage with other specialists who may be required to complete the deal. Blake Morgan has relationships with accountants, surveyors, property advisors, pension experts, brokers and corporate finance teams across London, the South of England and Wales.
Blake Morgan is able to deal with the complexities of the legal work and ensure that the parties are properly protected from liabilities in respect of any deal. The team is also able to package arrangements to suit any client requirements.