Forget the M&A doom-mongering, the SME market is vibrant
Last year’s headlines were all about the global $4 trillion M&A boom, and the rise and rise of the mega deal. This year, commentators have found their stories elsewhere. From TATA to BHS, newspaper takeover talk has focused on troubled targets searching in vain for the right buyers, alongside market pessimism and negative predictions on the impact of Brexit. What’s more, some of 2015’s most eye-catching deals have actually fallen apart. In April, US pharmaceutical giant Pfizer walked away from its mega-merger with Irish business Allergan. At an astonishing $160 billion, that deal was worth about the same as the GDP of New Zealand.
Read these stories and you’d be forgiven for assuming that this is the year of failed mergers, declining activity, and deeply difficult deal-making. Has the M&A bubble burst in 2016?
In a word, no. As is often the case, the big-name deals don’t tell the full story. A great number of transactions are completed at lower deal values, and there is ongoing, intense deal activity in SME sector internationally – the market in which BCMS specialises. From manufacturing via software, foodservice and retail, we are continuing to see dynamic businesses highly prized by a range of acquirer types, based in the UK and overseas.
What attracts buyers?
Take the BCMS-led sale of The Watch Lab, for example. This quality watch-repair business was acquired by Aurum Holdings – the group that owns the Goldsmiths, Watch Shop and Mappin & Webb brands, amongst others – in spring this year. Founded by brothers Jonathan and Jeremy Barker in late 2000, The Watch Lab grew to 15 branches nationwide, at high-profile retail venues across the UK including Lakeside Thurrock, Reading’s Oracle and West Quay, Southampton. The business attracted interest from near and far: on The Watch Lab’s behalf, BCMS approached and negotiated with some major acquirers in the UK, Europe and Asia.
The key factors that attracted these potential acquirers apply to almost any BCMS SME business, whatever the sector. The Watch Lab offered acquirers specialist skillsets, excellent market positioning, a clearly defined business model and a highly attractive customer base. Its specialist accreditations as a repairer for Rolex, Tissot, Longines, Omega and others cemented a reputation for premium service levels.
Make no mistake: a great SME business is a seriously exciting proposition for major acquirers. As Brian Duffy, chief executive officer of Aurum Group, said: “We are thrilled to acquire The Watch Lab, a fantastic business and a market leader in this dynamic area.”
Apply those principles, too, to the BCMS-led sale of Caterfood to Bidvest Foodservice in April. Established in 1970, Caterfood has a well-defined sales territory, supplying frozen, chilled, ambient and non-food products to over 2000 customers across the South West. Like The Watch Lab, Caterfood has some key ‘USPs’ – deep, long-term relationships with local businesses, and its own-brand ranges to complement products from the likes of Nestlé, Cadbury’s and Walls. It’s interesting to note that Bidvest will continue to operate Caterfood as a standalone brand.
At SME level, M&A activity is not about burning bridges, but building them
Both these deals were sales to a UK-based trade acquirer. But the past few months have seen the sale of UK SMEs to acquirers based in Japan, Germany and India. There is also a notable rise in the number of Management Buyout deals, such as the sale of London Swimming Pools to its Managing Director. BCMS also notes there has been a 41% increase in the number of Private Investors contacting us to lodge their acquisition requirements in Q1 and Q2 2016, compared to the latter half of 2015.
Interest from investors
There is strong private-equity activity, too. For the right type of business – simply put, one where key members of the owner/management team wish to stay and grow the business alongside a new partner – securing PE investment can be an excellent option. Only last month, my team successfully negotiated a deal for one of our clients with Lloyds Development Capital, an organisation which has publicly committed to invest £1.2 billion in UK businesses over the next three years.
What will the latter half of 2016 bring us? If the BCMS pipeline of forthcoming deals is anything to go by, then it’s more of the same. That means a wide-range of deals and deal types in a huge array of sectors. In the past weeks alone, we have had strong offers accepted on client businesses in software, consultancy, food nutrition and equipment supply. Buyers range from major trade names to bespoke investment vehicles.
For business owners looking to sell today, the right deal is out there. It’s just a case of finding it.
Credit: This article first appeared in the July/August edition of The Business Magazine