Maximising business value

How do you maximise the value of your business when considering future disposal plans?

by Adrian Howells

When it comes to maximising the value of your business, there’s a lot more to consider than meets the eye.

An uncertain market creates the opportunity for businesses to review their strategic options with a view to unlocking embedded value and accelerating growth.

Whether your proposed next steps include investment, or making an acquisition or disposal, in all cases your desired outcome is likely to be the same – achieving the maximum return possible.

There are a number of options business owners may consider when appraising, looking to increase or ultimately, realising value. If you are a business owner or an adviser to a business with a long-term view to exiting, do get in touch with the corporate finance team at Quantuma. We would be delighted to talk you through your options and how we can assist you in maximising the value of your business.

1. How might I value my business?

Business valuation is very subjective, particularly for smaller firms, where there may be customer concentration, key-person dependency within the management structure or turbulent trading patterns.

Nevertheless, there are various techniques which can be used to give a defensible guide to valuation.

Recent transactions in relevant sectors involving similar-sized businesses provide a great basis for determining defensible valuation ranges. Information is not always publicly available in respect of smaller transactions, however our experienced corporate finance team is able to navigate the myriad of transaction data and together with their deal-doing experience provide a robust valuation range.

Another option is to look at multiples being achieved by companies in your sector that are listed on the public markets, where valuation data is automatically available. Naturally a significant discount factor should be applied to account for the much-reduced liquidity of privately-held shares. This can provide a good sense-check to your initial workings.

A final technique is to use a discounted cash flow, looking at future earnings of the business and aggregating these to determine today’s value thereon, accounting for the risks associated with future earnings.

Ultimately, the value of any business is what a willing buyer is prepared to pay. As such, valuations depend on a huge number of variables and it is well worth seeking our professional advice to assess your expectations.

2. Who might buy it?

Depending on what stage of the lifecycle a business is at, buyer options tend to vary. Fast-growing and earlier stage businesses may be suited to venture capital or private equity funds that typically invest for growth capital returns. For more steady-state businesses, trade sales are often optimal as the buyers will understand the business as well as market and can typically, readily slot acquired operations into their own. For smaller businesses, it may be more appropriate to look to high-net-worth investor groups that look to invest modest capital in a range of companies.

Finding the right buyer for your business is critical to maximising the value you are able to realise and ensuring on deliverability of a transaction. Quantuma has a wealth of experience in successfully selling small and medium-sized businesses and can help identify the best buyers for you.

3. What might I do to increase the value of my business?

If you or your client are considering selling a business in a few months or years’ time, rather than right away, taking advice and investing that time and effort now will positively impact the value of the business at the point of sale.

This may include managing working capital effectively, optimising the capital structure and ensuring an appropriate debt/funding structure. These factors go hand-in-hand with more obvious activities such as growing sales and profits, ensuring contracts are all in order, improving margins as well as efficiencies and ensuring stable financial performance. Owners may look to acquire relevant businesses, expand into new and more popular markets as well as integrate a strong Tier 2 management team who can readily take over so that as an owner you can gradually step back from the day-to-day running of the business.

4. How long will the process take?

We have transacted hundreds of deals over the years and each takes a different amount of time, largely depending upon the complexity of the business being sold, the intricacies of the transaction and also drivers to the disposal process. To run a full process with a view to achieving maximum value, it might take six to eight months. To achieve maximum value and the smoothest transaction process, planning and preparation should commence several months or even a few years before the eventual sale process commences in earnest. Therefore, the earlier a business engages with us, the more value we are able to add to the process.

5. How much tax might I pay?

Getting your tax structure right can make a real difference to your personal outcome when you choose to exit your business. Even if not a full disposal it is possible under partial exits to apply Entrepreneur’s Relief which is currently ten per cent, albeit successive Governments have legislated restrictions as to its application on share disposals. With repeated political pressure to scrap Entrepreneur’s Relief, significant change could be made to this relief in the near future which may eat 30 percent or more of an owner’s value on exit if the rates begin to approach comparative income tax rates.

We are able to walk you through the various options and support you in identifying common pitfalls to help you maximise your returns. Given the clear risks to Entrepreneur’s Relief, we would recommend that business owners looking to sell should consider this sooner rather than later.

6. How can Quantuma help me?

Contact us today to discuss your or your client’s business. We would be happy to share our wealth of deal-doing experience with you and work with you to achieve your or your client’s desired outcomes. Our corporate finance team are trusted experts who provide a comprehensive range of corporate finance services to ambitious entrepreneurs and business owners who want independent advice to help them take major decisions about the future of their business.

We focus on the UK lower-mid and mid-market, providing practical, hands-on advice to a range of businesses facing a transitional or transactional inflexion point. Generally speaking, the deals that we advise on include mergers and acquisitions, disposals, debt advisory and cash flow lending, with typical deal values ranging up to £50 million and beyond. In 2018, our corporate finance team completed 10 deals totalling a value of over £200 million and we have already completed a number of deals in 2019.