Why your clients would be advised to act now if they want to sell their business.
As a lawyer, accountant, or other professional adviser, you may have clients who are keen to sell their business, but who are reluctant to go to market now because of today’s economic and political uncertainty. However, as deals specialist Adrian Howells explains, taking action now will set up sellers to take advantage of an improving market and favourable prices. With transactions taking longer to finalise, it also makes sense to get the sales process in train early. Wait and it could be too late.
As a lawyer, accountant, or other professional adviser, you may have clients who are keen to sell their business, but who are reluctant to go to market now because of today’s economic and political uncertainty. However, as deals specialist Adrian Howells explains, taking action now will set up sellers to take advantage of an improving market and favourable prices. With transactions taking longer to finalise, it also makes sense to get the sales process in train early. Wait and it could be too late.
With interest rates high and economic growth still constrained, deal appetite among trade buyers, private equity investors and other acquirers has been subdued in the last 12 months.
With the right support, however, sales are still getting done. As lead deal advisers, Quantuma’s corporate finance team helped more than 20 founding owners sell their businesses in 2023 and reap the financial rewards from all their years of innovation, ingenuity and hard work. The companies we have supported stretch from Lifecast Body Simulation, a globally renowned leader in the design of medical manikins, to Challenge Packaging, a Sussex-based packaging manufacturer.
Longer to agree
Today’s economic uncertainty means that sales are taking longer. With high borrowing costs reducing available funds and leaving little margin for error, buyers are more selective, asking more questions and carrying out more extensive due diligence. As a result, transactions that would previously have been completed in six months can now take nearer to a year, meaning that a transaction started now will reach out into a more certain future.
The signs say go
So, is this a good time to sell? When advising your clients, you would naturally want to err on the side of caution. However, waiting until the economic recovery has taken hold could actually diminish the chances of success and open up more risks for business owners than going to market now. While that might sound counterintuitive, there are three good reasons why now is the time to have deal conversations with clients and get preparations underway:
1. Allow enough time to get the deal done
With transactions taking a year on average to finalise, getting started now would give your clients more time to find a buyer and secure a good deal just as markets are opening up. Moreover, by the time sales initiated now are agreed, the uncertainty of the election will have passed, whilst interest rates are likely to have fallen, so buyers will have access to more funds and a greater appetite to go ahead.
2. Take advantage of favourable prices
Sales prices have held up well despite the uncertainty, partly because fewer good deals are coming onto the market. But if your clients wait until the economy is firing on all cylinders again and deal activity is gathering pace, there will be more assets on the market for buyers to choose from, making it harder to stand out from the crowd.
3. Capital Gains Tax rises are on hold, but for how long is in question
At the time of writing, the public statements coming from both the Conservative government and Labour opposition are encouragingly business-friendly. This includes a pledge from Labour not to raise Capital Gains Tax (CGT) rates in a first budget. However, given the spending commitments from both parties and growing holes in the public finances, it may be more a question of when, not if CGT rates rise. Getting the sales process going now may therefore help owners avoid a CGT hike ahead, with the significant value erosion this would entail.
Your key role in delivering a successful sale
While the economy is still fragile, there are strong arguments for getting the sales process started now rather than waiting.
And you as an adviser can play a key role in delivering a successful deal. As a lawyer, for example, you can make sure that your client’s customer and employment contracts are watertight, which is a key focal point for acquirer due diligence. Similarly, as an accountant, you can help your client prepare robust and consistent financial data, financial forecasts, asset valuations and other key numbers needed to support the sale.
For our part, we are here to help you and your clients steer through complex deal challenges and secure the right result. Our approach is centred around one-to-one engagement right through the process, from an initial informal chat over a coffee, to finding suitable buyers and marketing the business, then delivering a successful deal smoothly.
In future articles, we will be looking in more detail at how to secure the right result for your clients, including conversations about succession, helping clients with special situations and how to extract the most value from the transaction.
Let’s talk
If you would like to discuss any of the issues raised in this article or find out how we can help your clients to sell their businesses, please do contact us.
Adrian Howells
Managing Director
adrian.howells@quantuma.com
