Time to open the war chest?
17th May 2012 by David Scrivener
With the UK back in recession and the Eurozone crisis refusing to go away, one would assume that now is the time to hold onto your cash and avoid any unnecessary risk. It is therefore interesting that we are seeing an increasing number of shrewd business owners using this period of uncertainty to grow their businesses by acquisition.
One of the main reasons that my clients are considering buying businesses is that there are undoubtedly still some bargains out there. There are a number of reasons why this can be the case. The sellers may be desperate to retire and therefore willing to accept a reduced price, the target business may be suffering from financial difficulties forcing the sellers to accept a low price or the target business may have suffered from a reduction in profits during the recession which has reduced its valuation (despite it being well placed to return to previous levels of profitability in the future).
Due to the on-going challenges in raising “unsecured” finance in order to buy businesses, many of our acquisitive clients are relying on their own cash funds or security in order to fund these transactions. However, it is worth noting we are also seeing more willingness from sellers to accept some of their money on deferred terms, having come to terms with the reality that this is often the best that they can hope to achieve in the current climate.
It is no surprise that business owners who have been successful enough to build a war chest are not content with the low interest rates that are available and would rather seek a better return from their cash. They are not put off by the fact that others around them are being far more cautious and instead take the view that following the herd rarely leads to success in the business world. The risks that they take are however calculated and each opportunity is thoroughly evaluated.
In conclusion, although now is a time to tread carefully, it is also important not to ignore opportunities. In the current climate, I believe that there are many opportunities for investors to purchase a bargain. However, they also need to be aware that there are many potential pitfalls and that careful due diligence and good professional advice is still a necessity.
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