Following a prolonged period of depressed economic activity, during the last year we have finally begun to witness an increase in M&A activity. Although this may be localised, the wider economic outlook does appear positive. With this in mind, now could be the time to consider either selling your business or growing through acquisition.
From a seller’s perspective, your business may well now be on an upward curve buoyed by an improving economy. A good time to sell a business is when it is on the up with good prospects and strong forecasts.
In order to make your business as attractive (and as valuable!) as possible, there are a number of issues to consider. Is your financial information up to date and accurate? Do you have strong second tier management in place? Are there proper contracts / agreements in place with employees, customers and suppliers? Are there any on-going disputes (e.g. with HMRC)? By addressing issues such as these and grooming your business prior to sale, you will be able to maximise value and minimise potential pitfalls.
When selling a business, you should also be aware that it is possible to benefit from some very modest tax rates if you plan cash extraction carefully and ensure that you meet all of the criteria for any available reliefs. Tax planning should therefore be considered at the earliest opportunity.
From a buyer’s perspective, the market is not yet overheated which leaves you with more choice and more chance of acquiring at a realistic price. It is also still challenging to raise finance for acquisitions so well capitalised businesses can afford to be choosy.
There are a number issues for buyers to consider. The first is usually valuation and it is important to consider both past and potential future profits, as well as the asset base and any liabilities.
The structure of an acquisition must be addressed at an early stage. There are very different tax and risk implications associated with a share purchase as opposed to an asset purchase. Buyers should also be alive to the fact that very few transactions take place without an element of deferred consideration or some form of retention.
Finally, if a deal is agreed it is crucial that you carry out thorough due diligence. We have recently advised on a number of potential acquisitions where, following due diligence, we were left with a very different impression of the opportunity.
It may be a good time to buy or sell but do be sure to seek advice on accounting, tax and legal matters to ensure the best possible outcome.