A buoyant investment market presents opportunities, but business owners should proceed cautiously, warns Greg Philp

19th February 2016

Latest research from the Lyceum Capital and Cass Business School indicates that investment for SMEs is at its highest level for 5 years.  Based on private equity investments in 2015, with an enterprise value between £10 million and £100 million, their analysis shows that volume transactions increased by 12% last year, with 87 investments totalling £3.43bn.

But it’s not just the larger investments that are on the increase – the market is also buoyant at the lower end, where transaction sizes can be much smaller. Businesses with values between £500k to £5m are also seeing increased activity. In the midst of apparently wider economic uncertainty, hardened entrepreneurs are recognising that their businesses need to continue to evolve in order to be successful. Standing still is not an option. 

Whilst the rise in activity represents a number of exciting opportunities for owner-managed businesses, it also emphasises the need to take advice from experienced and trusted professionals.

For those considering a sale, business owners should be wary of an ever-increasing number of opportunistic organisations, that promise to introduce a number of mysterious buyers, which in many cases never materialise (see my earlier article on speculative approaches). They should also beware of those sales agents who promise to sell the business for a vast premium, but only in return for a large upfront fee.

Meanwhile, for those looking to merge or acquire, there are other pitfalls to negotiate in the pursuit of opportunity.  The upsurge in activity has led to a large increase in the number of businesses advertised for sale. The quality of businesses available is highly variable, and the price expectations of certain vendors can be somewhat over-inflated.  Much like the buying and selling of homes, sales agents will naturally try to paint their client’s business is the best possible light.

The general rule for would-be-acquirers is “don’t believe the hype”; do plenty of research, be clear on what you are looking for and seek the advice of an experience professional to guide you through the process.

For more information on how HB&O’s Corporate Finance Team can support you and your business, contact Greg Philp at greg.philp@hboltd.co.uk or 01926 422292