Category: Helpful tips for SME's | Preparing to sell a business
Mon 26th January 2015
2014 was another very good year for Hornblower and the M&A market in general. The number of business owners deciding to sell continues to increase, and at the same time there is an increasing number of active buyers with funds.
We are very positive about 2015 and here is why:
- Positive growth forecasts for the UK in 2015. The latest forecasts project 2.4% growth in UK GDP this year the same as what was forecast this time last year for 2014 and exceeded; with confidence growing amongst business owners and investors looking to expand their businesses, acquisitions represent an immediate means of achieving compounded growth.
- Businesses operating in certain sectors have been doing well now for at least the last 3 to 4 years and so are able to provide confidence to buyers of their ongoing sustainability despite the difficult trading period. They are now in a good position to sell and thereby allow business owners to press ahead with their plans to retire or start other projects.
- There are numerous active buyers with cash funds available to acquire businesses. Such buyers are less reliant on bank lending and are still looking for better investment returns than cash and an alternative to property.
- When it comes to larger deals, banks are now keen to lend albeit within certain limits and are still under pressure to do so. Banks are also facing increased competition for lending from alternative sources and means of funding, such as invoice finance specialists, new banks in the UK and even crowd funding (though we are still yet to see crowd funding used for any of our deals).
- Whilst cross border deals are rarer in the smaller end of the SME market, there is increasing demand from international buyers for businesses with revenues of £2.5m+. Because of the positive economic outlook relative to the rest of Europe, the UK is seen as good place to invest, even in small to medium sized businesses.
Which businesses will sell well in 2015?
Whatever the economic conditions when it comes to sales, mergers and acquisitions in the SME market, certain factors hold true. Businesses which sell well typically have the same traits, they:
- Operate in a niche market with strong barriers to entry
- Have consistent recurring revenue, with clients often locked in by a service contract
- Have strong profit margins
- Demonstrate tangible growth and opportunities to expand
Such businesses include the sectors listed below. This is proven by the acquisitive demand for such businesses that we have seen over the last 3 years or so.
- Precision engineering for aerospace, automotive, oil&gas and food processing markets
- IT support and telecommunications
- Software development and Software-as-a-service (SAAS)
- Commercial cleaning and facilities management
- Archive storage and record management
- Accountancy practices
We have hundreds of active buyers on our database and consistently receive at least 70 enquiries for each business we market in these sectors.
Good businesses with sound returns will always sell well. It is also best to sell while you are still successful and enjoying it.
Do you have a business in one of these sectors?
At Hornblower, we like to start dialogue with our clients 2 to 3 ears in advance of when you are looking to selling. We are always happy to offer advice on valuation and what performance metrics you need in order to achieve your desired deal value, as well as offer general advice on the various options for exiting your business and when is the right time to sell.
Will 2015 be a good year for selling your business?
Quite possibly, but please do get in touch to discuss.