Category: Helpful tips for SME's | Preparing to sell a business
Fri 3rd January 2020
Brexit and the elections dominated the news in 2019, and Brexit part 2 – “the trade deal” will be a feature of 2020. However, with a general loosening of austerity post-election, some commentators in the investment community are predicting the UK economy may get a boost in 2020. The election result also removes market fears of an increase in regulation and nationalisations, as promised by Labour, and the potential impact this may have had on the wider economy and SMEs.
From our perspective, appetite for acquisition remains strong and we are in the process of preparing and bringing to the market a good number of businesses for sale in our core sectors in Q1 2020. Our team has grown over the last year and a half, and 2020 in our view is certainly set for a good level of business sales and overall M&A activity.
There is a strong demand for the majority of our business sale mandates. We put this down to our careful client selection process, but also a general reduction in good businesses coming on the market.
The number of business owners deciding to sell has remained steady in 2019 if not slightly declined, but at the same time there is an increasing number of buyers with funds actively looking for businesses to acquire, both in the UK and from abroad. As always though, buyers’ focus remains on the sustainability of the business in terms of its management, key customers and prospects for growth.
In replenishing our stock of businesses for sale in 2020, we remain confident of achieving successful sales of our clients’ businesses and, and here is why:
- Our clients and contacts in the engineering, construction and business services sectors report that they remain busy and expect ongoing growth in demand.
- Now that we have some clarity about the next steps of Brexit, business owners are now looking to progress with investment plans which may have been on hold for some time.
- There are a good number of infrastructure, building and engineering projects underway in the UK. Whatever direction the post Brexit trade talks take, there is a general consensus that the government will be keen to bolster the economy by ensuring these projects continue to be funded.
- With continuing confidence amongst business owners and investors looking to expand their businesses, acquisitions represent an immediate means of achieving compounded growth.
- There remains a high level of cash reserves in both trade buyers’ companies and investor groups’ funds, ready to acquire profitable businesses.
- Interest rates remain low driving further the desire for acquisitions with high ROI.
Which businesses will sell well in 2020?
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 5 years or so.
- IT support and telecommunications
- Precision engineering for aerospace, automotive and food processing markets
- Facilities management, building security & fire systems, and commercial cleaning
- HVAC, refrigeration and vending / catering equipment maintenance
- Software development and Software-as-a-service (SAAS)
- 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.
When is it ideal to start the dialogue?
At Hornblower, we like to start dialogue with our clients 2 to 3 years in advance of when you are looking to sell. 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.