Fri 20th January 2017
2016 was another good year for Hornblower and the M&A market in general. We have been busy especially during December and January so far reaching heads of terms on four of our sale mandates. The number of business owners deciding to sell has remained steady, but at the same time there is an increasing number of buyers with funds actively looking for businesses to acquire.
We remain very positive about 2017 and here is why:
- Despite the risks around Brexit, European elections, and the global economy, growth forecasts for the UK GDP in 2017 remain defiant, though only time will tell the long term impact of the Brexit negotiations. With continuing confidence amongst business owners and investors looking to expand their businesses, acquisitions represent an immediate means of achieving compounded growth.
- Service sector businesses still account for a large part of this growth. However many engineering and manufacturing companies are benefiting from the devaluing of the Pound, certainly those who export. With the oil price beginning to recover, engineering businesses reliant on oil & gas infrastructure projects are recovering and such engineering companies make for an attractive acquisition.
- The devalued Pound also makes UK businesses particularly of interest to overseas buyers and we have seen an increase in the number of buyers from mainland Europe, the Middle-East and the USA. 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+.
- There are still 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. 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).
Which businesses will sell well in 2017?
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 and food processing markets
- Commercial cleaning and facilities management
- Software development and Software-as-a-service (SAAS)
- IT support and telecommunications
- Logistics and distribution
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 years 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 2017 be a good year for selling your business?
Quite possibly, and with Hornblower onboard you will have the best chance of success!