Corporate Finance review

Deal volumes have dropped slightly, however, the size of deals and the multiples paid have continued to climb. It has always been true in general terms that bigger businesses attract bigger multiples than their smaller counterparts. This gulf has continued to grow, as large international firms and institutional buyers circle healthy businesses making good profits.

The impetus from the continent appears to be energised by differing reasons.

Many people’s first thought is to attribute the increase in cross border activity to a weaker pound, meaning foreign firms pay a lower price in their native currency. However, at the time of writing, Sterling was in the region of a five year high against the Euro. It is true that Sterling was noticeably weaker towards the end of 2021, however, this was not out of keeping with the levels seen in recent times.

An evident factor driving these types of transactions appears to be the perceived value in the UK. As a sweeping generalisation, a multiple of 5x to 6x for a UK business making £1m, EBITDA would have looked reasonable in recent times. On the continent, the multiples have generally been above the UK levels, which has created an opportunity for value. As demand grows, so do the multiples, with multiples in the range of 7x to 9x, now not an uncommon sight for the right business.

Britain’s exit from the European Union has caused some issues, but it is also clear that this is driving some cross border activity, as international businesses seek a foothold in Britain through acquisition. At the lower end of the scale, it is becoming more difficult to sell small businesses which have low profit margins. In order to achieve
a sale it is vitally important that smaller businesses develop a USP and conduct a targeted exercise when going to market.

A lack of second tier management is the single largest barrier to a sale which we encounter. Ultimately a purchaser’s biggest fear is that the trade walks out of the door with the seller. The lack of continuity post-
sale increases the risk to the buyer. The relationship between risk and price is similar to a see-saw, the lower the perceived risk, the higher the potential price.

For all business sales – small and large – early advice and preparing for a sale, can increase both the likelihood of a successful sale and the price received.

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