Will 2021 be the right time to sell your business?
As we come into the Christmas holiday season, this is when we find many business owners take time to reflect on the past year and make plans for the next, both for the business and on a personal level.
Clearly 2020 has been a year like no other with the COVID19 pandemic and resulting lockdowns affecting some businesses quite severely, namely in the hospitality, events and retail sectors. At the same time other businesses have fared quite well, in many cases seeing an uptick in demand through the year. The technology and B2B service sectors were able to switch to homeworking relatively easily, whilst many engineering and construction related businesses have been able to continue working with social distancing measures in place.
From our perspective, there is much to be positive about going into 2021. Not only do the vaccines give us all hope for living more normally with the virus – and what an incredible feat of human ingenuity the speedy development of these vaccines demonstrates – but also there are a good many well established businesses which have remained sustainable and indeed have thrived due to their ingenuity.
2020 has been a good year for Hornblower with a good number of deals completed successfully. Appetite for acquisition has remained strong and we were able to bring to the market a good number of businesses for sale in our core sectors in Q1 2020.
We have continued to take on a good number of new sale mandates throughout the year and we look forward to bringing these to the market in 2021. Indeed, 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 2021, we remain confident of achieving successful sales of our clients’ businesses, and here is why:
- Our clients and contacts in the engineering, construction and business services sectors report that they remain busy, with a strong pipeline of new business.
- Valuations have in the main remained at pre-Covid levels, both in terms of multiples of earnings and buyers taking a medium to long term view.
- There are a good number of infrastructure, building and engineering projects underway in the UK. In these times, 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 and sustainable businesses.
- Interest rates remain low driving further the desire for acquisitions with high ROI.
- With the prospect of increasing unemployment in the aftermath of the lockdowns, we would expect that the Chancellor will look to encourage entrepreneurship by maintaining Entrepreneurs Relief on the sale of privately owned companies, or at least an equivalent incentive.
On this last point, there remains the possibly that Entrepreneurs Relief on the sale of a business will go in the budget in April, but in most cases it is too late now to start the sale process and expect completion in time. As always, it is best to base your future plans on your business and personal objectives, rather than tax incentives alone.
Which businesses will sell well in 2021?
Whatever the economic conditions when it comes to sales, mergers and acquisitions in the SME market, certain factors hold true – perhaps now more so than ever. 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 medical laboratory 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.
Not sure whether now is the right time to sell your business? Talk to us now
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.