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Case Studies


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Digital Ecosystems


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Mid-Market Mergers and Acquisitions: Where Are We Now?

Guy Rigby Friday, 25 November 2011.

A growing acceptance that economies in many parts of the world are unlikely to recover significantly anytime soon has impacted heavily on optimism among business owners and potential vendors. There's a grudging recognition that businesses will probably continue to be worth far less than a few years ago and that this is unlikely to change in the short term.

Debt finance

In the current climate, many business owners simply don’t know whether to save, borrow less or borrow at all when it comes to capital expenditure or acquisitions. Relationships with banks and suppliers that have sometimes taken years to build now seem to count for very little. The banks, on the other hand, are being told not to take risks and to maintain strong balance sheets – but then they’re accused of not lending enough. While some business owners looking to secure funding have a clear grasp of what will happen in their business over the next 12 months, many more do not. Banks shouldn’t be criticised for refusing to lend to the latter.

Wait and see?

Over the summer there was some hope that the economy was recovering and the prevailing attitude among potential vendors in the mid-market mergers and acquisitions (M&A) world was to ‘wait and see’. While this remains the preferred option for many, there is still a steady trickle of businesses putting themselves up for sale due to the unavoidable realities of death, divorce and retirement, lack of cash or because they’re no longer able to delay big decisions as they reach a pivotal point in their development.

In these cases owners are faced with a tough choice: a hard slog through bleak economic conditions and the challenge of raising capital to take the business to the next level, or alternatively, taking what they can now? Pragmatism dictates that some are choosing the latter. 

Active buyers

Cash is still king in the current environment. While still relatively thin on the ground, there are cash-rich corporate buyers out there, including overseas buyers, ready to make strategic purchases in the UK, leveraging their own balance sheets, so that finance is secured on the rest of the business rather than the target.

There has been significant interest and activity in sectors with a strong international focus as a natural hedge against domestic market conditions, notably in chemicals. There is also strong demand for good-quality IT businesses, especially from buyers in China and India. Businesses with strong intellectual property value, for example a methodology with scalability or access to a customer base or process, continue to be of interest to international buyers.

Elsewhere, there is plenty of ‘buy and build’ activity in healthcare, domiciliary care, dentistry and physical disabilities, where scale is key, with consolidation being driven in part by regulatory requirements. Keeping up with regulatory standards can be difficult for small businesses as they generally don’t have the resources to monitor change, but much easier where cost can be spread across multiple business units.

Looking ahead

Where there is M&A activity, transactions are generally taking longer to complete. Buyers are scarce, making it far easier to find reasons not to complete a deal. For example, things like dilapidations clauses in leases can now be deal breakers, whereas previously they would have been waved through. Also, it’s very tempting for potential purchasers to delay yet another month to see if an apparent blip in trading is indicative of a longer-term trend.

Any business owner planning a sale should remember that, more than ever, preparation is key. You need to be absolutely sure that all your ducks are in a row. Make sure you have a good management team in place and address any issues within the business that need resolving, including settling any litigation issues, if possible. Don’t leave your preparation too late.

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Guy Rigby

Guy Rigby

Guy is an experienced chartered accountant and an entrepreneur. A natural and driven enthusiast, he built and sold his own accountancy firm, as well as pursuing other commercial interests. He has been a director and part owner of a number of different companies, including businesses in the IT, property, defence, manufacturing and retail sectors.

Guy joined Smith & Williamson in 2008 and leads the entrepreneurial services group. His day to day activities include advising entrepreneurs and their businesses and coordinating Smith & Williamson's activities in this increasingly important market.

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