Dealmaker urges business owners looking to exit to ‘think more like investors’
Business owners looking to sell their businesses must start to think more like private investors, according to one leading regional dealmaker.
Steve Hickman, partner at KPMG in the Midlands, said although the deals market is “incredibly strong”, those looking to sell their business need to change their mind-set.
Hickman said: “Market conditions are about as perfect as they get at the moment. After the credit crunch, large multinational and listed businesses tended to leave cash on their balance sheets or used it for share buybacks or enhanced dividends. This has now firmly shifted such that these companies are more aggressively pursuing growth. The fastest way to do this is by buying up businesses instead of investing in new products or services – and so they have been acquiring.”
Conditions have been helped, says Hickman, by the £1.3 trillion of private equity cash globally waiting to be deployed; the introduction, post-crunch, of a significant number of credit funds into the UK market; and the fact that high street banks are now in a much stronger position, all driving deep and broad liquidity he said.
What’s more, there are different types of businesses who have taken advantage of the growing appetite for tech.
“These firms, by and large, didn’t exist before 2007,” he said. “Now, they’re flying and taking on investment to make their businesses bigger. In doing this, they often choose to de-risk by raising debt finance or selling part of the company prior to a fuller exit at a later stage.”
The turbulent political scene is also driving deals, says Hickman. “There is a concern about what happens after Brexit, he said. “Who knows what will happen, and while business owners again might not want to sell all of their business before we leave the EU, they may be looking to de-risk by selling part of it.
So, what do business owners need to do to make sure their business is ready for outside investment or a full change of ownership.
According to Hickman, CEOs should start by making sure they’re tax-ready.
He said: “An increasing number of business owners are now selling their businesses but leaving some items too late to implement, for instance providing management rewards upon exit. There are various tax issues surrounding this that include both ordinary or “shadow” equity, and so the person exiting the company should prepare for this at least 12 months in advance.
“They should think: ‘Have I done all I can?’ before selling their business and be more proactive. For those that are only just starting to think about exit, a prospective buyer could pick up the phone tomorrow and start the process of a sale immediately.
I’d urge business owners to think more like investors; while they might be busy with the day-to-day running of their firm, they also need to look to the longer term. For those that get it right, the rewards can be substantial.”
If you’re considering the next stage in the evolution of your business, download KPMG’s Road to Exit guide or email midlands@kpmg.co.uk for more information.
