4
March
2024

Preparing your business for sale

There are steps business owners can take to make their business more attractive to potential buyers in order to either capitalise in 2024’s hopefully active deals market or ensure that their business remains an attractive target regardless of external circumstances.

John McDermott | Senior Associate – Corporate & Commercial

The past two to five years have possibly been the most economically and politically turbulent period since the mid-1980s, with individuals and businesses alike feeling the economic effects of events such as the war in Ukraine, post-Brexit labour shortages and increased import and export costs, and more recently, Houthi action on Red Sea shipping routes. 

Unsurprisingly, this led to a marked decline in M&A deal volumes and values in 2023.  

Against this backdrop, owners looking to sell their business could be forgiven for believing that they need to put their retirement or next venture plans on hold until the global economic and political circumstances stabilise. However, industry commentary suggests cautious optimism for increased deal activity in 2024. Many economists and business leaders believe that we have reached the top of the interest rate-cycle, which will make borrowing cheaper and should relieve downward pressure on valuations. Decelerating inflation and the fact that many institutional investors have unutilised funds available as a result of 2023’s reduced activity suggests that there will be a much more buoyant market in 2024. Indeed, 60% of CEOs surveyed by PWC confirmed that they plan to make at least one acquisition in the next three years. 

So much for external factors, but there are steps business owners can take to make their business more attractive to potential buyers in order to either capitalise in 2024’s hopefully active deals market or ensure that their business remains an attractive target regardless of external circumstances. 

Strategic fit 

An acquisition which satisfies a buyer’s specific strategic objectives is much more likely to survive a changeable external economic climate than a speculative or “nice to have” acquisition. An example may be a manufacturer that is reliant on agency staff buying another manufacturer with a skilled and settled workforce in order to avoid the need for paying agency or sub-contracting costs going forward.  

Industry commentary suggests that this may be particularly evident in respect of transformation: businesses which need a technological or digital overhaul may look to buy another company that is already optimised on these fronts, rather than carrying out a transformation project internally. Therefore, the strategic fit does not just apply to customer-facing functions, it can apply to a business’ internal processes. 

It would be useful to look at your business from an outsider’s perspective to try and identify which parts of it could add most value to a potential buyer. This may lead to broader spread of potential suitors to pitch to outside of your sector. 

Group structure 

2023 saw an uptick in demergers and separation activities, including disposals of subsidiaries, suggesting a buyers’ preference for simplified group structures. 

If you have a complex group structure in place that has evolved over the years, now may be the time to consider with your tax advisors whether that structure can be streamlined; for instance, you may have dormant subsidiaries which are no longer required. 

A simplified group structure could make your business easier to understand from a buyer’s perspective and may help to reduce the amount of due diligence required. 

Personnel 

Having the right management team in place is fundamental to your business’ success. This applies not only to your company’s financial performance but is a key operational requirement of many buyers. In the majority of private equity-backed acquisitions the existing management team will be expected to run the business following completion. 

It is sensible to review and make sure that you have the best possible management team in place: 

  • Are your existing team members in the correct roles?  
  • Are their benefits packages sufficiently competitive with the market standard in order to incentivise them?  
  • Do you need to recruit externally to bolster the management team or plug any skills gaps? 

Succession planning 

Directly related to the reassessment of your team, in an SME or owner-managed company, a buyer will want to ensure that the true value in terms of client contacts and business knowledge will not exit with the retiring shareholder. Ways to address these risks could include: 

  • Sharing knowledge and documenting work processes, 
  • Training and mentoring of your staff, 
  • Introducing your client contacts to your successors in order to ensure the continuity of those relationships after your departure. 

Sectors 

It is predicted that the companies operating in technology, pharmaceutical or renewable energy industries will be particularly attractive to buyers; Goldman Sachs report that $3 trillion of investment is expected in renewable energy over the next decade. However, even if your business operates outside of these fields, it could still be an attractive target if the strategic fit makes sense, and your financial performance is robust. 

What next? 

If you are looking to sell your business in 2024 now would be a good opportunity to take stock and optimise those aspects of your business which are performing well and address those which are in need of some improvement in order to take advantage of increased acquisition activity in the year ahead. 

Here at Primas, we can advise business owners throughout the entire life cycle of a business, from incorporation to exit. If you need advice in preparing your business for sale, please contact a member of the Corporate and Commerical team. 

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