Engineer turned tax advisor Sarah Boyes is a senior manager in our Taunton office. Why did you decide to specialise in tax? I worked in industry…
If you are thinking of selling your business in the near future there are several key reasons to consider why now (perhaps unexpectedly) might be a very good time.
Availability of funding
There are a myriad of alternative finance lenders looking to support businesses that are actively supporting change of ownership transactions. Private-equity investors have huge sums of cash to invest to achieve a return and are hungry for acquisitions in the South West.
Valuations for quality businesses have held up very well over the last six months and in fact there are premiums being achieved for high quality businesses that have outperformed their market during the crisis. We have seen competition for the right businesses pushing prices up, as well as benefiting from all the funding available to maximise the proceeds for Vendors.
We are finding that there remains many acquisitive companies with cash reserves looking to grow by acquisition as well as Private Equity backed businesses actively seeking strategic targets. For the right businesses who have innovated and potentially flourished there is significant competition. Overseas corporates are still keen to get a foothold in the UK and are taking advantage of the devaluation of the pound, putting vendors in a position to command higher prices from buyers.
- The postponement of the Budget
With the Budget being called off until next year, there is time for business owners to put in place plans to exit from their business while capitalising on the current tax regime. The fact that what was once known as Entrepreneurs’ Relief was renamed ‘Business Asset Disposal Relief’ in the March budget is an indicator that HMRC have their sights set on the 10 percent Capital Gains Tax (CGT) rate on the disposal of certain business assets (including shares in a trading company). Additionally, the review of CGT that the Chancellor has commissioned is seen by many as a potential route to increase tax revenues with an alignment of CGT rates to higher income tax rates of up to 45%.
- Don’t necessarily wait until the economy improves
Whilst it might initially appear reasonable to wait until your business performance is maximised, if this strategy is adopted by many others, it will be a buyer’s market and prices may well fall. In addition, the further out this occurs to achieve the classical three years of good financial performance before selling, this leads close up to the next General Election – which also tends to impact negatively on valuations.
Alternatives to a trade sale
There are many ways to crystallise value in the business you have built and we are seeing many business owners look to their management teams and employees, who have supported them over the last year, as a means of continuing the legacy. Management Buy-Outs and Employee Ownership Trusts could provide a way to recognise the combined effort of those involved in making the business a success.
Partial Sale or Partial Buy-Outs enable Vendors to de-risk, whilst still having the opportunity to benefit from future upside performance. They also allow Vendors to ease into retirement rather than face a cliff-edge change in the life-style.
Despite the continued uncertainty, we are seeing active acquirers looking for strategic purchases of high quality businesses, particularly in sectors that have performed well during Covid 19. We will be running a webinar on Thursday 5 November discussing in more detail the issues raised in this article, as well as providing some practical insights.
Follow this link to register: https://www.bigmarker.com/pkf-francis-clark/Why-now-is-not-a-crazy-time-to-sell-your-business
Additionally, we will be holding an interactive workshop in November to delve deeper into understanding how much your business is worth, exploring exit/sale options, how to go about achieving a premium price, and assessing the tax implications amongst other matters.
Your Corporate Finance team
Locally based experts on hand to help with supporting you with your business and personal goals – https://pkf-fccf.co.uk/about-us/
Across the PKF Francis Clark team we have supported clients in delivering their goals. A sample of recently completed transactions include:
- Microserve acquired by Investis Digital, a leading global digital communications company https://www.pkf-francisclark.co.uk/news/bristol-based-technology-firm-acquired-by-global-player/
- Wifi SPARK acquired by Canadian head-quarted Volaris Group https://www.pkf-francisclark.co.uk/news/south-west-technology-success-story-acquired-by-overseas-buyer/
- Kensa Group, a ground source heat pump manufacturer and installer, securing a landmark investment from Legal & General https://www.pkf-francisclark.co.uk/news/cornwall-contractor-secures-investment-from-ftse-100-company/