Will 2023 be a good year to sell your business?
2021 and 2022 have both been busy years for the sale and acquisition of SME businesses. Despite the challenges in the economy and outlook for 2023, we continued to complete a good number of sales through Q4 2022.
Coming into 2023 we look forward to bringing a number of new sale mandates - well established, profitable and sustainable businesses - to the market in the coming months.
The environment for SME sales, mergers and acquisitions is though changing with the impact of inflation and increased interest rates, as we discussed in our recent article.
Interest rates and the value of cash are likely to alter how deals are funded over the coming years, but what we are seeing is that appetite for acquisition remains strong with some well-funded buyers still in the market. Whilst low interest rates have enabled many buyers to enter the M&A market for SME’s without strong cash reserves, there remain many buyers in the market who have as a result maintained and built up strong cash reserves. Cash which risks being eroded if not deployed in investments.
The technology and B2B service sectors tend to be quite resilient in tougher economic times, as are many engineering and facilities management related businesses.
As always though, buyers’ focus remains on the sustainability of the business in terms of its management, key customers and prospects for continued growth. Many businesses have experienced a strong trading period during 2021 and 2022, so the challenge will be to demonstrate how this uplift in revenues and profits can be sustained through more challenging economic conditions.
In replenishing our stock of businesses for sale in 2023, 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 service sectors report that they remain busy, with a strong pipeline of new business.
- Acquisitions still represent an immediate means of achieving compounded growth and increasing market share for trade buyers and PE firms with sector focused portfolios.
- There remains a high level of cash reserves in both trade buyers' companies and investor groups' funds, which will be eroded by inflation if not deployed.
- Valuations in the main remain at and are still even improved on pre-pandemic 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.
Despite the Chancellor looking at all the means to increase HMRC tax revenues, the threshold for Business Asset Disposal Relief (BADR) - formerly known as Entrepreneurs Relief - on the scale of privately owned companies, is already relatively low and aimed at owners of smaller SME's; so in our view this is unlikely to be changed.
On this last point, there remains the possibility that the Chancellor will take away BADR on the sale of a business at some point. However 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 2023?
Whatever the economic conditions when it comes to sales, mergers and acquisitions in the SME market, certain factors hold true, perhaps now more 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.
- Cyber security and IT managed services
- Logistics and distribution
- Precision engineering for medical laboratory and food processing markets
- Facilities management, building security & fire systems, and commercial cleaning
- HVAC equipment maintenance
- Software development and Software-as-a-service (SAAS)
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 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.