Wed, 04 Oct 2023 | BUSINESS NEWS
New analysis has revealed that half of business exits stem from an unsolicited approach from a buyer. The report highlights concerns that this widespread “tap on the shoulder” approach means many owners are ill-prepared to maximise the value of their sale.
According to the report from accountancy firm Azets, which analysed corporate finance transactions that it has advised on in the past three years, 50 per cent of exits came about due to an unsolicited approach. An unsolicited approach involves a prospective buyer, such as a large corporate, private equity firm or competitor, making a direct approach to see if the owners will sell.
Azets say that this tactic has become increasingly common since the COVID-19 pandemic, reflecting the large cash reserves built up by corporate and private equity buyers who are seeking to execute growth plans by targeting strategic acquisitions. Private equity firms, in particular, have raised billions to deploy on buy and build strategies, driving consolidation across numerous sectors.
However, with Azets predicted that M&A activity will ramp up over the next 6-12 months, the analysis has also come with a warning that many business owners are under-prepared to capitalise on unsolicited approaches from such cash rich buyers, leaving them at risk of failing to maximise shareholder value from any sale.
According to Azets UK Head of Corporate Finance Lee Humble, who says that nine times out of 10 a company is unprepared for a sale, planning a sale in advance is one of the most profitable management decisions a company can make.
He commented: “The SME sector is rife with innovative, ambitious and entrepreneurial companies, so successful businesses can easily land on the radar of acquisitive corporates, whether they are based here in the UK, in continental Europe, or further afield, without knowing.”
“Cold approaches are often extremely flattering and it’s very easy to end up deep into a process very quickly. This is both an opportunity and a risk – an opportunity to realise great value for the shareholders, but only if their business is prepared and presentable, but a risk if an approach catches the business owners and management unaware, and results in value well below the business’ full potential.”
“Unfortunately, nine times out of ten a company is simply not prepared for sale, is immediately on the backfoot and hence find it difficult to gain the upper hand in negotiations.”
Azets say that, in order to maximise value, owners should plan their exit years in advance, regardless of what type of sale they end up making. Lee Humble says that assuming their business is always for sale will mean owners “are more likely to prepare accordingly and will be better equipped to manage the unexpected call.”
Humble outlines four key benefits that owners can unlock from strategically planning their exit:
Shareholder value is maximised
Business continuity is more likely
Due diligence risk is reduced
Business performance is more likely to improve
He concludes: “Our research indicates that the majority of successful businesses leave exit planning to the last moment. We encourage business owners to add ‘exit value’ to board agendas to focus minds on getting exit ready, even if a planned sale is not imminent.”
Find out more about preparing your business for a sale:
Tips for scaling up your six-figure business prior to a sale
Are you really ready to sell your business? - Key questions for owners considering a sale
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