Management succession – There’s still deals to be done and funding provider FW Capital recently sat down with members of the North’s deal making community to look at management succession transactions in the wake of the pandemic and the shadow of Brexit.

Undoubtedly the past couple of years have led to business owners reassessing their futures, changing their priorities and considering whether they can or want to build their businesses back better, following the most challenging peace time trading period in generations.

Over the course of the discussion, it became clear that although there may be changes to the market and new challenges, there are deals to be done.

Stephen Gregson
Moore & Smalley

Stephen Gregson of Moore & Smalley opened the conversation by stating that the market has been reasonably buoyant during the pandemic but added the caveat that it all depends upon the specific circumstances of the business owner and what they want out of life.

Patrick Abel, Hart Shaw

Patrick Abel of Hart Shaw noted that the market was actually been in the midst of a shift even before Covid-19 highlighting a move towards trade sales.

Abel continued that he believes there is a still a hangover from the 2007 crash leading to people who are in their 60s or older who missed the opportunity to exit pre-crash and are now looking to transact. He explained this has changed the dynamic of deals because the vendor often wants to exit soon after the deal is done.

Craig Richardson, PHD Industrial

Craig Richardson of PHD Industrial Holdings agreed with Abel, indicating that the pandemic has been an accelerator, with people realising that they have sacrificed family life to run their business and now want to spend more time perhaps with their grandchildren.

He said that this then has a knock-on effect on the value which the entrepreneurs may be willing to accept.

Lee Humble, MHA Tait Walker

Lee Humble of MHA Tait Walker agreed and went on to add that business owners have had a lot to contend with and after a period of aggravated volatility there appears to be a real hunger to realise value, either in full or in part, with sales to management and / or employees increasingly attractive.

Andy McCall, Langtons Corporate Finance

Andy McCall of Langtons Corporate Finance echoed the earlier sentiment of a buoyant market which he attributed to a combination of factors. He explained that the pandemic and Brexit have highlighted the continuous risk in owning a business where owners never know what is around the corner. McCall stated that this, combined with the ever-present threat of capital gains tax increases has led to a perfect storm that is driving deals.

Stephen Garbett, Azets

Tax was also described by Stephen Garbett of Azets as a driver, however he noted that it was fuelling a significant uptake in employee ownership trusts. He explained that the seller often likes the idea of 0% tax as well as avoiding the fear of an unknown third party becoming involved in the business. He stated that business owners who utilise an employee ownership trust may also be more willing to accept a deferred consideration.

John Jones, Beever and Struthers

John Jones of Beever and Struthers agreed stating that they’d seen an increase of employee ownership trusts, noting that they’re not management succession in its purest term. He added that alongside the tax advantages were the flexibility in the way the deal is done and the ability to spread deferred consideration over a longer period of time.

Jones once again reiterated the fact that the market has remained buoyant throughout the pandemic which was the consensus around the virtual table, along with the agreement that the need for succession planning now is more crucial than ever before.