Why 10 ‘likely’ acquirers will never be enough
Are business owners really clamouring to “cash out” and sell up in case Jeremy Corbyn comes to power? This is the contention of an interesting piece by successful serial entrepreneur (and former chairman of Channel 4) Luke Johnson, in his weekly column for The Sunday Times. In How to offload your business (in case Corbyn gets elected), Johnson makes the point that a tax regime under Labour would be punitive for those looking to sell the business they have built and grown – and this is prompting a rush of owners to head for the exit.
Johnson’s piece contains some high-level discussion of the basic principles of company sales, from the appointment of an advisor and lawyer, to researching prospective acquirers, to negotiation, and legal due diligence. His article is a well-written run-through of the challenging and complex world of business sales, which explores some of the factors involved in a transaction, from smaller SME sales to PLCs.
However, we at BCMS would contest a number of points. Johnson’s statement regarding drawing up a list of potential acquirers (“I much prefer 10 serious names to 50 who might have a vague interest”) might seem sensible enough. After all, why bother with tyre kickers? However, it’s important to remember that M&A is a global industry, and for businesses with a much lower brand profile than Johnson’s previous interests, such as Pizza Express and The Ivy Restaurant, generating a wide range of potential acquirers is absolutely essential.
We believe all business owners need to look cross-market, cross-region, cross-sector and most crucially cross-border. Which is why across BCMS’s deals in 2016/7, around 30% of all our clients sell to overseas acquirers, and the typical size of our research list for each client is closer to 200 than it is to 50.
Every sector (and every business) is different too, so the “no-stone unturned” approach is vital. You need to look beyond the obvious. Generating an extensive research list, and contacting them personally, is the only way to discover who these 10 “serious names” actually are. Our clients regularly tell us that they were astonished where their buyers came from, and the level of interest we generated in their business.
Competition, of course, creates the best value – and the goal here is a market of motivated bidders, who will compete for the right to buy your company, often for surprising strategic reasons. Throw into the mix the weaker sterling, and the UK’s global reputation for innovation and expertise, and UK businesses of all sizes become attractive to a global market of acquirers, rather than just a handful of the usual suspects in your industry.
Johnson is right that there may be an upswing in business owners looking to sell, however – and that is due to the general climate of uncertainty. From Brexit, to the threat of bank rate increases, to forthcoming General Data Protection Regulations (GDPR), which could make legal due diligence even more intensive, there are uncontrollable variables that can impact on a business owner’s thinking. Uncertainty means more and more business owners are assessing their options: do I stay, or do I go?
As to the current tax regime being the key reason for sale: this is not our experience, and we are currently finalising deals for clients across sectors including technology, food, engineering, healthcare, industrial and IT services. None of their reasons for sale is based on political crystal-ball gazing or fear of the taxman. Sellers sell for the reasons they have always done: a blend of commercial (the right time, the right market) and personal (change of lifestyle, desire to do something new). None of these clients – in the language of the headline – is looking to ‘offload’ their business to anything but the best home for the company, and its staff, and for the best deal possible.
And to do that, you need to look far, and wide.