Brexit and business sales – what we know so far
2016 has been a year of change, and Brexit – this year’s major disruptive event – is at the forefront of future commercial and strategic planning for UK business owners. For those looking at selling a business, or wondering ‘is now the right time to sell’, there is a dearth of actionable, usable information. The following analysis is designed to be informative and apolitical, and is drawn from a variety of sources including BCMS’ own internal research and results.
Weak pound boosting exports, and creating opportunity
Analysts including EY predict UK exports will rise by 4.5% in 2017 and 5.6% in 2018 and will form the largest component of GDP growth. Agile UK-owned businesses are already adapting sales and marketing channels and targeting non-UK customers.
Major spike in international interest in UK businesses
Since the UK voted to leave the EU on 23 June 2016, there has been a major increase in international acquirers expressing interest In UK businesses. While the relative weakness of the pound is a factor here, the UK is likely to remain attractive to overseas acquirers until it officially leaves the EU, which will almost certainly by in 2019. We are already seeing this hold true in our own statistics: since June 23, BCMS has seen a 53% increase in offers made by international organisations on our UK client businesses when compared to the same period in 2015.
Furthermore, despite 2015 being a boom year for M&A globally, business sales to overseas acquirers are 400% higher in 2016 than in the same period in 2015 at BCMS. Cross-border transactions now account for 28% of all BCMS deals.
Deal types are changing
Over the past few years, record low interest rates have seen organisations stockpile cash. For businesses with cash-rich balance sheets, acquisition is an excellent route to growth. Today’s acquiring organisations will place significant emphasis on due diligence when pursuing an acquisition, and for many SME business owners, selling a company has consequently become more challenging and complex. That said, the changing market has also delivered a greater range of transaction options for sellers of privately owned businesses.
When it comes to selling a business, sales to trade acquirers (companies operating in the same or complementary sector) remains the most common BCMS-led deal type for 2016 at 65%, but there is a clear rise in ‘financial buyers’. These include Management Buy-In teams and asset-backed High Net Worth private investors. Transaction levels with Private Equity (PE) houses or PE-backed acquirers are strong, and these deal types currently represent 21% of all BCMS deals.
PE houses are moving beyond their traditional safe havens of consumer, tech and aerospace to the wider economy – investing in construction, waste, packaging; in the deal space that used to be served by high street banks.
Hot sectors - commentary
Technology has long been a high-growth sector, and Brexit did not change this perception. In the month following the departure from the EU, there was $200m of funding across 42 deals, led by global Venture Capitalist funds. (Source: London & Partners).
BCMS’ internal figures support this: software and software-as-a-service (SaaS) businesses are prized by international acquirers, with post Brexit deals including the sale of Safeware Quasar to US acquirer UL.
In the food sector, despite low food price inflation to date, investors are actively acquiring niche food brands. BCMS-led deals post Brexit include Bridges Ventures’ investment in specialist ingredients business Vegetarian Express. In precision manufacturing, a sale to a major strategic acquirers can deliver new channels to market for agile, innovative SME businesses. This is evidenced by the October 2016 sale of Hampshire-based motorsports prototyping specialist BRP Composites to the Tritech Group, a subsidiary of India’s Neterwala Group: the latest in a long line of BCMS-led manufacturing transactions.
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