Jim Shaw is Founder and CEO of Shaw & Co. In this article Jim discusses why now is the best time to think about your exit
For many owner managers the last five years have been good ones, with positive trading conditions supported by low interest rates, access to capital and macro-economic growth. Which means that those thinking about selling will have a strong set of five-year figures to show prospective buyers.
Those long-serving owner managers who steered their businesses through the financial crisis will need little reminding that good times do not last forever. Ten years ago, the FTSE 100 index stood at around half its present figure, with a long slog still ahead before the sort of growth we have become accustomed to kicked in.
That’s not to say anyone – least of all us – is predicting that another meltdown is imminent. But there are some signs that the waters may become a little choppier. While markets have appeared to take every risk, from Brexit to global trade wars, in their stride, GDP forecasts are generally being revised down rather than up.
Even the most bullish would probably agree that ten years of strong economic and financial markets growth is unlikely to be followed by another ten. So, it makes sense for owner managers to take stock of their business and personal goals now rather than later, while the seas are relatively calm and with a good wind behind you.
The decision to sell can be a complex one but is ultimately a chance to realise your personal goals, whether that is financial security, an opportunity to complete your bucket list or a chance to move on to your next business adventure with the cash you need to make it a success.
And broadly speaking, the value you realise will depend on two factors: the state of the market and the way you present your business to it.
Most business owners have more important things to do than study vagaries of the M&A markets. So, to summarise, times have been very good for the last five years, with record numbers of businesses sold for record amounts. This has started to soften slightly. In fact, the number and value of UK mid-market deals fell in the final quarter of last year. However, when seen against five years of pretty much continuous growth, these falls are modest.
So, with enough global risks and economic uncertainty to keep commentators in business, why is the market staying relatively strong? One simple answer is that there are still a lot of buyers, from private equity funds with ample dry powder to corporates with strong balance sheets and an eye for growth-boosting acquisitions.
So, cash and debt buyers are supporting high valuations and multiples, which is good news for prospective sellers – but there is a catch. Aware that they are going to have to pay top dollar, buyers are only interested in high quality companies that tick all the boxes. So, not only do you need all your figures and legal matters in order, you need to get in the eyeline of buyers who see the strategic value that your business can bring to them. And in some circumstances, you may need to adapt accordingly.
To take one example, less than six months ago we helped South West recruitment company Passionate about People complete a multi-million-pound sale to the UK’s leading outsourced workforce provider, Staffline. But that’s only half the story. To attract the best possible buyer and valuation for their business, we first advised on the divestment of a non-aligned strand of their business. That meant two sales to two strategic buyers, instead of one that might have appealed to neither. On a personal note, the sale also enabled the dedicated management team at Passionate about People to end their 20-year business journey on a high.
Of course, many exits do not require a divestment or other major action, but the principle remains the same: get an outside perspective on what makes your business attractive to a buyer and what actions could make it even more valuable.
At Shaw & Co we work with owner managers, so our process begins with you and your financial goals. Therefore, one of the first things we do is begin a valuation process. We work with you to benchmark your business against others in your industry and from that use our methodology to provide you with a realistic expectation of what you could achieve. That gives you a chance to see if it will deliver your personal financial goals. Then, together we create a strategy to get you from where you are today to where you need to be in order to attract he right buyer.
With detail about the positives and pitfalls at each stage of the process, the guide sheds light on what can be a complex process. Real-life examples demonstrate how we use our experience and creativity to find the best route to exit for each individual business we help.
The time it takes to optimise your business for exit will depend on your company’s individual circumstances but while some might be able to get to market by the end of 2019, most will need to spend longer preparing.
If you are worried that this means that you may have missed the boat, think again because prospects remain good for the right companies and buyers’ access to capital shows no signs of abating. This is certainly borne out by our own experience where, despite a busy last two years helping South West businesses to secure exits, our deal pipeline is bigger than ever. So, with the market still strong, but a question mark over how long it will remain so, the key is to be prepared. And even if you start the process then decide the timing’s not right for you and your business, the work you do with us will still be valuable because, when the time is right, you will be ready.
Please feel free to get in touch so we can discuss the options available to you and your business.
Keep IT Simple Limited (KITS) is a provider of high value IT support and transformation services to public and private sector clients. Find out how we helped with their trade sale.
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