Here is a quick guide about the various options available for those looking to sell their businesses post-Covid. This feature is brought to you courtesy of M&A experts Avondale.
One of the toughest questions any independent owner will face during their working life is when to sell their business. For some, there is the possibility of handing over the reins to a son or daughter, or another family member. Yet for many, when there is no obvious succession to the ‘throne,’ there comes a time when they will need to leave their busy working lives behind and sell up.
And most important of all, it is vital to get a fair price for all their hard work over many years and possibly decades. And guess what? This is a dilemma which is probably being pondered more than ever nowadays, following the chaos of Covid. With profits hit during lockdown, there is a perception to think ‘no’. However, most buyers will take reduced profits into account because of Covid, while there is also an increase in private equity money looking for quality businesses to invest in. This is driving prices up.
Trade buyers are also starting to shop again, to offset slow organic growth. Recent surveys show that nearly all the CEOs of Fortune 500 companies are searching for acquisitions to transform their business model. The pandemic has reminded us all that life is short. Although successful business owners usually miss the cut and thrust of daily life, they can always slow down a little by seeking out a non-executive role that may take their fancy. Meanwhile, others want to head straight for the first tee and some welcome fresh air.
Right now, nearly all financial advisors believe the currently benign Capital Gains Tax Environment will go up from 20% (above £1m) to 40%. This might be accompanied with some retirement relief, but all pundits expect a hike. Many sellers are also reluctant as their businesses generate a good yield. However, there are some mouth-watering investment opportunities available which can provide a solid post-deal yield.
Today, there is a myriad of exit choices from trade to private equity, including Employee Ownership Trusts. These are friendly sales at 0% tax, with some owners being taking on as an employee after they sell up. The recent sale of Ice Roofing & Cladding Ltd joins other illustrious companies, including Aardman Animations (Wallace & Gromit), which have been keen to protect their brands and legacies, yet secure a soft exit for shareholders.
For private equity, many sellers are now choosing to reinvest in their own businesses, feeling confident that the new owners will take the company to the next level of growth. Therefore, there are plenty of incentives for the seller to package the business professionally, by highlighting how new growth can be achieved post-deal. However, productivity needs to be team-driven as a business dependent on owner-managers is perceived as a higher risk by potential purchasers.
Some sellers may also be buyers. Buying the right company can be a great way to create advantage, and leap-frog value. Buying with synergy and economies of scale means the sale is often greater than the sum of the parts. Cheap debt and super-abundant capital means fund-raising for buyers is very achievable and affordable against the yield.
Regarding the market, we are witnessing a shift away from big-ticket scale acquisitions, with companies now favouring strategic deals that offer greater long-term value. With the need to disrupt and gain a competitive advantage, acquisitions will no longer be based purely on financial modelling and synergy, but also in terms of how they change markets and business models. There is now a greater focus on the value of the team, as well as intellectual property, post-Covid.
Initial Public Offerings (IPO) are also on the rise. There have been several impressive flotations in recent months. These include Victorian Plumbing‘s £1.1bn float, and also Pension Bee. The reality of all decision-making comes down to taking a ‘leap of faith.’ You will never know whether you could have hung-on and achieved a bigger price. And, as for trying to second-guess rules and regulations regarding tax, this is always beyond our control.
Get professional advice as early as possible and from someone who has nothing to gain from the sale. Age and lifestyle requirements will also have a bearing, as will the opinions of your nearest and dearest. Tyrefix Plant Tyres (UK) Limited recently witnessed a sale with private equity backing the owner’s son.
In summary: All ‘stay or sell’ decisions should be driven by what your current and future ambitions are. However, but this should only occur after you have undertaken quality research and received professional advice. If there is one thing Covid has taught us, it’s that there is more to life than just work. The journey is the story, not the sale.
This article was brought to you courtesy of Avondale the leading M&A advisor that helps owners buy or sell companies, secure investment, grow their business and enhance shareholder value.
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