Taking the temperature of the corporate finance market

14th July 2016

Taking the temperature of the corporate finance market


It would be fair to say that we’ve seen a lot of change recently. With a major recession still fresh in the memory, businesses are now facing a period of uncertainty following the recent decision to exit the EU. However, with a new Prime Minister in place, and the chancellor making positive noises about ensuring the UK continues to be an attractive place to do business, we are already starting to see confidence return. 

So, to what extent does the current situation affect the buying and selling of SMEs? 

HB&O tends to be involved in a wide range of deal sizes, that can be anywhere from a few hundred thousand pounds to several million. We have seen a significant increase in the number of deals taking place over the past year. There are a number of drivers behind this improvement, including the realisation of delayed retirement plans, an increasing number of well-funded management buy in candidates and the growing confidence of smaller trade acquirers. 

More recently, cautiousness has crept in, particularly in the immediate aftermath of the referendum. However, Brexit is unlikely to be a quick process and I expect businesses will increasingly adopt a ‘business as usual’ approach for the time being. 

Sources of sales and acquisitions 

One of the main sources of business sales recently has been retirement. A number of entrepreneurs had to put their retirement plans on hold when the recession hit. Having navigated the difficult trading conditions that followed, business owners have spent the last couple of years repairing the damage and returning their businesses to profitable levels. We’re now seeing an increasing trend for those ageing business owners looking to resurrect their delayed retirement plans. 

There has also been an upsurge in credible Management Buy-In (MBI) candidates, with a number of successful senior professionals at larger firms opting for a lifestyle change and choosing to be their own boss by purchasing a small business and running it themselves. 

Increasingly, smaller owner managed businesses are feeling much more confident about purchasing other firms in their field. Previously an area dominated by large firms, smaller companies have started to realise that there are good opportunities available and, that by purchasing competitors or complementary businesses of a similar size, they can diversify and expand the services they offer. 

At the smaller end of the market, we are also seeing an increasing emergence of small private-equity investors, who are looking to build a mixed portfolio of profitable SMEs. 

Realism and patience 

There is strong appetite from purchasers looking for their next business opportunity, which feeds vendors’ appetite to sell. However, there is a very large number of businesses on the market at the moment, so vendors have to be realistic, particularly during economic uncertainty. 

An increasing minority of vendors are overly optimistic about the price they can achieve for their business due to being poorly advised and told what they want to hear. 

My advice to sellers is to have a realistic approach to what your business is worth and be patient. Sellers are more likely to have success if they have sensible price aspirations, as it will attract more purchasers, and competition between purchasers will help to drive the price up. Trying to sell for an inflated figure will simply put purchasers off. 

For an informal chat about how we can help you prepare your business for sale or for all other corporate finance queries, please contact Greg Philp on 01926 422292 or greg.philp@hboltd.co.uk