dealmaking roundtable 57
Rolfe: “We have got good visibility of a steady low-growth market environment, where I believe there will still be enough going on to keep us all busy.”
Is the market evolving as activity has grown?
Roberts explained that the 2008 downturn had led many owner-managers to put off their plans to sell and exit. Instead they stayed on to bring their businesses through the recessionary times. “Now, they are seeing it’s a good time to exit because of positive macro- economics including low interest rates.
“But, what needs to happen more is adequate preparation for a sale, such as building a suitable management team so that when the owner-manager exits, the risk of business performance deteriorating is reduced.”
Arnold agreed, but added that some sellers were holding on to get a better price for their business. He exampled one selling client who recently received very encouraging business performance figures and then postponed his exit for 18 months. “We have almost gone full circle, from having to sell and aiming to get the best price available, to waiting to sell to get the best price, because they consider the deals undercooked.”
“Don’t buyers need to see some upside left in the business they purchase?” queried David Murray.
Business buyer Doug Lingafelter said he only looked for a certain type of acquisition – owner-managed niche businesses, with the owner seeking to retire, and opportunities to reinvigorate and restructure operations. “I don’t spend a lot of time trying to time the macro-economics. If I can find a business with underlying good products and reputation then the external factors are unimportant.”
Are today’s deals now approaching their ‘sell- by date’?
Lingafelter suggested that UK entrepreneurism began 30-40 years ago when people started to realise that they didn’t have to work for a large corporate or in the public sector for their whole career.
“I don’t think it’s any coincidence that the first businesses I bought were founded by people who felt they could give it a go in the late 1970s, and now find themselves hitting retirement age. Shouldn’t we expect that entrepreneurial startup curve to produce a real increase of SMEs coming to market about now?”
Arnold: “I’ve seen some of that, and the challenge, particularly when representing
THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2015
“Often today, the children may be capable and skilled, but they just don’t want to work in them.”
Chris Roberts
sellers who just want to get out, is in trying to defend the business valuation so that the seller gets the right deal.”
Rolfe: “Doug’s theory has logic and we have seen that happening among traditional manufacturing style businesses, although technology-led businesses have a different sale cycle that happens a lot quicker.”
Anstey: “We are not seeing a big uplift in retirement inquiries but BCMS is a company that originates dealflow very practically, through our seminar programme for instance, so we get a fairly even quantity of new business and dealflow."
He pointed out that shareholder structures at sale might not be the same as when they were set up 30-40 years ago.
“We are seeing a notable trend of split management boards with an older generation of shareholders seeking exit and a younger generation wanting to stay in the business. So, we are having to explore different transaction solutions for clients – MBOs, MBIs, growth capital deals – rather than a traditional trade sale scenario.
“Those alternatives are no more than 20% of our transactions to date, but I expect to see that growing strongly.”
Arnold: “We have a sale going through where the earn-out share doesn’t match the shareholdings, because the older shareholder is stepping away, but the younger one is staying in the business.”
Thorburn: “Isn’t it just that now is the right time to sell? Valuations are quite high, credit is still relatively cheap, the general economy is OK, so it comes down to how much debt can be taken on to purchase businesses.”
Hunt: “The media talks about the Baby- Boom generation wanting to retire and get out, but the big wave hasn’t arrived yet.” Age was a prominent factor, but illness, lack of succession, personal commitments were also reasons for sales.
Murray added that family businesses no longer seemed to be passed down through the generations. Hunt answered:
Steve Anstey
Hunt noted that ‘retirement sales’ did tend to involve successful but smaller companies, often lifestyle businesses. He exampled one
www.businessmag.co.uk Continued overleaf ...
Boredom was another reason to sell and exit, said Arnold. “People who have been entrepreneurs often hate it when their businesses grow and they end up as managers and paper-pushers. That’s not what they started their business to do.
“Different skillsets and more energy are required when businesses grow. Owners may enjoy the lifestyle the business provides, but eventually not the business itself. Exits can be related to age, but not always.”
Who’s most successful: serial or one-off entrepreneurs?
Rolfe: “Some of our most successful entrepreneurs have been one-offs. But, we gravitate towards serial entrepreneurs, because they have done it successfully before and that’s the best reference you can get to back them again. We would also get more comfortable taking risk with an individual or team with whom we have worked before.”
Norman suggested more experienced entrepreneurs typically run more successful businesses. “We find that many entrepreneurial people who started businesses 30 years ago, have already exited and are now on their second or third successful business. They have learnt the lessons from their first business to make the next investment even better.”
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