Archive for the ‘Buying a Business’ Category
We are seeing more private businesses appear on the market again after a short lull. One of the reasons for this is that in the lead-up to the recent Budget there were rumours about that the government may have been about to kick the very useful Entrepreneurs’ Relief into touch. Heaven forbid!
This prompted more than a few concerned business owners to cash their chips before D-Day.
In early 2015, the PMI figures for the services sector hit an eight-month high and confidence was soaring. But in May, the sector dipped somewhat unexpectedly. So why are industry analysts still anticipating strong performance from the sector? We explore the climate within the services sector and ask if now is a good time to buy a services business.
Recent figures indicated that the services sector's rate of expansion is slowing down. The Service Sector Purchasing Managers Index (PMI) from Markit and the CIPS showed that May's index was down to 56.5 from the 59.5 high recorded in April.
The latest monthly index for June should be released in the coming few days so it will be interesting to see which direction the trend has taken in June as May’s reading was something of an anomaly given that the previous month's reading was an eight-month high.
David Noble, chief executive of the CIPS, commented on the unexpected change in the services sector: “Momentum in the sector stalled in May, with the drop in the headline index the biggest fall for almost four years and likely to cause concern as services remains the UK’s largest driver of economic growth.”
Positive Service Sector Outlook in Spite of Downturn
Analysts aren't denying that it is a little concerning to see the service sector follow suit with a bit of dip in confidence after the recent weaknesses also seen in both manufacturing and construction. But with GDP just this week (30 June) revised up from initial estimates of 0.3 per cent growth in the first quarter to 0.4 per cent growth, the PMI figures certainly aren't bringing with them the sense of anguish that might usually be expected.
Chancellor George Osborne was among those to welcome the revised data and triumph the hope for further growth in the near future: “It is clear that our plan is laying the foundations for economic security for working people, with the three main sectors of the economy growing over the past year and business investment over 30 per cent higher than at the start of the last parliament.”
Of course, Mr Osborne has a vested interest in suggesting that his policies and this government's approach are working for the economy. But he isn't the only one showing faith that the latest negativity is a blip in an otherwise upwards journey to growth.
Analysts, including Martin Flanagan of the Scotsman have suggested that in the ongoing climate of austerity, heightened by concern around the Eurozone and the highly probable Grexit, services is likely to be the sector to pull through and keep growth on track.
Mr Flanagan wrote: “It looks like the Scottish services sector is still the best bet to take up the slack as we go forward as a result. It was not exactly ever thus, but it has been for a generation.”
Buy Now to Capitalise on Future Growth
Last month, 17.4 per cent of businesses for sale listed with the Business Sale Report were classed as service sector companies and we’re seeing a strong level of interest in this sector from our subscribers.
Along with everyone else, all we can do is to make educated guesses at where the industry will go in the coming months, but we’re willing to bet that there are a decent number of success stories to be found within the services sector for those smart enough and strong enough to tough it out another few months of potential upheaval.
Check out service sector businesses for sale.
For business buyers, the land of distressed opportunities can be a happy hunting ground, filled with great-value deals and easy-to-acquire assets. But distressed businesses can also attract rival bidders, which is why keeping a close eye on companies served with winding-up petitions can be such a worthwhile exercise.
So what exactly is a winding-up petition?
In short, a winding-up petition, or WUP, is a serious course of action taken against a business that fails to make financial payments to creditors. This can mean that the company has broken any trust the creditor had; its cheques have bounced; or the directors have not kept their word to make payments.
A powerful weapon in a creditor's armoury, a winding-up petition is served when a business, for whatever reason, simply cannot make the payments it needs to. The fact that it can cost anything up to £2,000 just to file a WUP is an indication of the severity of the action – it is usually a last resort when an individual or business needs to get the money they are owed.
Essentially, a WUP is an early indication – before a liquidation or administration take place – that a business has fallen into financial disrepute. Moreover, a winding-up petition is the start of a process which, if ignored, leads to the Compulsory Liquidation of a limited company.
So what is their relevance to business buyers?
As stated at the top, business buyers will often look to distressed businesses as ideal acquisition opportunities because companies that have fallen on hard times usually represent better value to the buyer. But this improved value can often bring with it greater competition. Getting a head start on rival buyers, therefore, is vital if one is to secure an acquisition before others beat them to the punch or enter the fray and drive prices up in a bidding war.
Importantly, once a winding-up petition has been served, the recipient business cannot sell the company or the assets, as this could be reversed by the court. So an immediate acquisition will likely not be possible. However, if one was to use the rather unflattering metaphor of a shark hunting injured prey to describe business buyers seeking out distressed opportunities, then a WUP is the first drop of blood in the water.
Winding-up petitions are not as well reported as administrations, nor are they a guaranteed sign that a business is about to go under, but they are a clear indication that there is trouble brewing. Thus, by monitoring WUPs a buyer can put a target company on their radar long before they will come to the attention of other buyers.
This head start can be crucial – it will give the buyer valuable time to conduct due diligence into the acquisition target, weigh up any assets that would be beneficial to their existing business(es) or establish if they could viably attempt a turnaround of the entire company. Importantly, they can do this before the target enters liquidation or administration, at which point many other buyers will be alerted to the opportunities.
The window of time in question, between a winding-up petition being served and the fate of the company being decided, often in the form of a liquidation or administration, is between six and eight weeks. This gives the buyer time to not only conduct the aforementioned due diligence, but also to speak directly to the sometimes desperate owner of the troubled company and lodge their interest, therefore improving their chances of cementing a deal when the appropriate time arrives.
So, in the competitive merger and acquisition market, where any slight advantage can yield huge benefits, understanding and closely monitoring winding-up petitions can provide the all-important edge a business buyer needs to achieve the sale they're after.
The Business Sale Report tracks all the latest businesses to have winding up petitions lodged against them. Click here to view the latest winding up petitions lodged in the UK.
It has emerged that technology companies will be at the top of business buyers’ target list over the next two years, according to research from law firm Pinsent Masons.
UK and Ireland have been highlighted as the most active areas for tech business deals, with London the start-up hub of Europe – no doubt helped along by London’s “favourable tax environment when it comes to tech investment”.
In a survey that questioned 150 senior corporate executives and private equity professionals on their views, about 80 per cent expected a rise in the volume and value of deals in Europe over the next year, set to top the record number of deals seen in the industry last year.
Cloud and mobile were tipped to be the most active areas for acquisition, while wearable tech items and the ‘internet of things’ were ranked as most likely to continue growing organically.
Those questioned in the survey had all completed deals in the past 12 months and said that expanding geographical presence was the most common reason behind technology acquisitions.
Satisfying industry regulations is still the highest legal hurdle to completing tech deals, Pinsent Masons said. Just under half of all successful buyers (45 per cent) said it had been the most difficult challenge to overcome in their last purchase.
Mergermarket’s editor Beranger Guille commented: “As the mid-market heats up, we expect deal activity to increase, particularly in volume, fuelled by growth in mobile payment, FinTech, analytics and security.”
If you are considering making an acquisition in the technology sector, visit our businesses for sale section to view over 100 medium sized technology businesses listed for sale.
It didn’t take long for the wheels to kick into motion following City Link’s slide into administration two weeks ago as today (6 January) the news broke that a buyer has been found for the company.
The parcel delivery business finally ran out of road on Christmas Eve, with union bosses condemning the failure and subsequent 2,000-plus redundancies as an “absolute disgrace”. But no sooner had the dust cleared from its unceremonious collapse than a buyer stepped forward in the form of rival logistics firm DX Group.
DX announced on Tuesday morning that it had bought more than £1 million worth of City Link’s assets including parcel-scanning equipment, cages used to transport parcels within warehouses and “certain intellectual property”.
The value of the assets is well known to the head of DX, Petar Cvetkovic, as he was once City Link’s managing director before leaving to set up the rival business several years ago.
It had been five years since City Link had posted a profit so, while the timing of its demise was unfortunate, leaving many without presents under the Christmas tree, it was not altogether surprising.
Nevertheless, the nature of this deal and the assets that were bought demonstrates that, even when a business has failed, it will still possess things that are of clear value to rival companies. Moreover, these assets are often available at a knockdown price.
That is why businesses in administration are in such demand among business buyers – because they can be dissected; the prime cuts can be taken away from the deteriorating carcass. In this case the factory equipment can have a clear and immediate benefit for DX, enabling the company to expand its operations or save money on machinery it would have had to buy later on.
The undisclosed intellectual property also points to another attractive selling point of distressed businesses. Whether it is bespoke software for a specific sector or a patent on a particular product, IP can add value to a business looking to grow or become more efficient.
Although City Link’s closure was one of the more widely reported administrations of the past 12 months – again because of its ill timing and painful consequences on people’s festive celebrations – the story illustrates the value of monitoring businesses in distress. Many similar collapses will not receive so many column inches, meaning business buyers must look a little harder to remain abreast of such developments.
Waiting for stories to report on the fate of companies often leaves it too late – a better, more proactive approach is to seek out listings of businesses that have failed or are failing. This will not only give potential business buyers a head start over many competitors, ensuring they spot businesses that have fallen into administration first, but it will also allow them to monitor signs of distress, including things like winding-up petitions, which act as the proverbial drops of blood for the sharks in the M&A pool.
If you are interested in identifying potential turnaround opportunities before the competition, then take a look at our latest businesses in administration list which we update daily for our subscribers.
More information on City Link in administration
There are many reasons why someone would want to buy a business.
For those who already own businesses it is the best way to grow, by expanding into new markets or out-muscle competitors. However, there are many people for whom buying a business is the beginning of a new journey to create their own company and be their own boss.
A nationwide study by Invest in Cornwall in 2013 found that 1.8 million Brits are planning to start their own company in the next five years – many of these will start by purchasing a business that already exists.
For these people buying a business is the metaphorical scratching on an entrepreneurial itch they have been carrying around for some time. And whether an individual has suddenly come into some money or has been saving away so they can start their own venture, buying a business is the first step on a new and exciting ladder.
But what makes buying a business and owning your own company such an attractive, worthwhile prospect?
First of all, often the most difficult aspect of starting a business is to create the idea – deciding what it is you are going to do that will make you money. Then come all the additional, practical challenges: funding, premises, staff, supply chain, business models, and everything else in between.
To buy a business gives an individual a head start and bypasses a lot of these difficult stages. A business buyer inherits structure, systems assets, employees, cashflow, and clients; even if these are things the new owner needs or wishes to change, they are hugely valuable to help get things off the ground.
Moreover, to create a start-up from scratch carries plenty of challenges, unknown quantities and risks. Indeed, Startups.co.uk notes one such problem: “Many start-ups fail from the outset because it’s so difficult to get people to put money towards a risky venture. But if you’re buying a business, depending on its cash flow and assets, you should be able to borrow as much as 70 per cent of the acquisition cost.”
Of course, this does not mean that when someone buys a business they are going to hit the ground running – the majority of small companies that will be acquired by a first time business buyer will be the kind that are struggling or in distress. Changes will need to be made, but importantly the skeleton will already be in place – given the right vision and enough resources, a new owner can then set about turning things around.
It might take months to complete an acquisition and it will also require large amounts of capital upfront, although, as pointed out, it is easier to get your hands on this funding when buying a company as opposed to creating a start-up. Nevertheless, buying a business can be a great springboard towards realising an entrepreneurial dream without having to complete the tricky opening stages.
For those who are dipping their toe into the merger and acquisition (M&A) market for the first time, step one is to set about finding a business to buy. A word of advice: looking at businesses listed for sale or falling into distress, rather than pursuing off market acquisitions, will almost always offer the best value for money.
So for anyone wanting to start their own business and become their own boss, the merits to buying a pre-existing company and moulding it to your heart’s desire are clear. Avoid the more pronounced risks and challenges that come with starting a business from scratch and make the M&A market the first stop on your route to entrepreneurial success.
Big data: it’s a term that almost everyone will have heard of, but why should business buyers take note?
To start with a brief definition, this latest technology buzz phrase relates to the exponential growth in the amount of data that is being generated, stored and analysed. Both individuals and everyday devices leave behind a data trail, which is becoming a gold mine for both private and public sector organisations – cheaper storage solutions and the availability of greater compute power via the cloud means that these massive data sets, which were previously too large to make sense of, can now be dissected and transformed into valuable insights.
For business buyers, it would be foolish to ignore a technological trend that is transforming the IT and digital world, especially as it is promising huge opportunities for those able to capitalise on it. Indeed, it is predicted that the global big data market will be 44 times larger in 2020 than it was in 2009. Furthermore, it has been said that big data could be worth £216 million to the UK economy over the next five years.
As big data has established itself as a mainstream business technology over the past 24 months, there is massive demand for a wide variety of products and services that can turn petabytes into competitive advantage.
The most obvious area is data analytics. Importantly, not only are the tools for crunching numbers highly sought after, but the people who can do it are also on the wish-list of many businesses; the fabled ‘data scientist’ is to 2014 what the web developer was during the dotcom boom. This is the person who can take data and make sense of it to give a company competitive advantage.
Research shows that the economy has driven a need for 69,000 additional big data specialists over the period 2012-2017, with 60 per cent of businesses already struggling to hire people with data science skills. The point? If people cannot hire in-house experts to unlock the value that is sitting within huge data sets then they are going to look to employ the services of a company who can.
There are countless innovative start-ups that have created cloud-hosted software for analysing big data, many of which operate in the ‘Tech City’ area in east London. They can offer the platform for companies, with or without a data scientist, to analyse and visualise big data. Crucially, these technology solutions are often targeted at particular verticals.
For business buyers this points to big opportunities – whether already operating in the technology sector or providing services to sectors like retail, healthcare or financial services, obtaining big data capabilities through a merger or acquisition could open the door to huge profits.
It might be a competitive market but it is one that is guaranteed to grow over the coming years – the big data bandwagon is one that business buyers ought to consider jumping onto, and quickly.
If you are considering a making an acquisition this year, take a look at our latest businesses for sale to get an idea of medium sized businesses on the market.
The number of worldwide business acquisitions in 2014 so far has topped the levels set in the past five years, with the M&A market now reaching pre-recession highs.
According to data from Thomson Reuters, in the first nine months of this year, the total value of global deals reached $2.66 trillion (£1.64 trillion). This is a massive 60 per cent rise in the figure at this point last year, with the number of M&As valued at $5 billion or more hitting a new high.
The figures are indicative of the growing confidence among business buyers; as the majority of industry sectors start to witness signs of sustained growth, people are more assured that they will see positive returns on their investments. However, particularly strong performances by the energy, technology and healthcare industries might be slightly distorting the overall level of M&As taking place.
Nevertheless, it is clear that the conditions for buying businesses are improving and the combination of increased capital and confidence within companies is leading them to explore avenues for inorganic growth. After five years of business people having to struggle to survive or settle for minimal, steady growth, there has evidently been a sudden surge as people wish to accelerate their expansion.
The valve has been opened and the pressure that mounted throughout the economic recession is being released in the form of more aggressive growth strategies. This means that speed in finding, researching and pursuing acquisition opportunities – particularly the highly sought after distressed businesses – is at a greater premium than ever.
As the M&A market climbs a steep upward curve, competition among business buyers for good value deals is going to increase. Ensuring they have their finger on the pulse is going to be key for those looking to add further to this year’s improved acquisition pot.
Asset-based lending saw a dramatic rise in the three months to the end of June this year, highlighting the ongoing difficulties many small businesses have in obtaining finance. These trials mean that firms looking to expand or acquire other businesses are being curtailed in their plans, which is also a negative for the UK economy as a whole.
Demand for asset-based funding – the majority of which sees lending against unpaid invoices – has risen as a result of the trials of accessing overdraft facilities and term loans from high street banks.
The research – which was compiled by the Asset Based Finance Association – saw a record £18.9 billion borrowed from such lenders over the time period.
Jeff Longhurst, chief executive of the organisation, told the Financial Times: “We are seeing more and more businesses of all sizes and types taking advantage of invoice finance to fuel their growth, particularly as more traditional forms of lending remain subdued.
“More businesses are viewing their invoices as what they are – one of their biggest assets.”
The lending was utilised mostly by smaller businesses, with under a third of the total funding being taken up by companies with an annual turnover of more than £100 million. Overall, the total amount of invoice finance and asset-based lending rose by seven per cent during the second quarter of 2014, representing a rise from £17.7 billion in the previous three months.
While the majority – four-fifths – of asset-based finance is invoice finance, the remaining 20 per cent is lending secured against assets such as property or machinery.
Mr Longhurst added that the finance was a “proven tool for growth, enabling companies to increase their funding as they grow.
“What’s becoming increasingly clear is that asset-based finance such as invoice finance in particular, is the alternative to traditional lending for SMEs that the Bank of England and the Treasury have been looking for.”
Credit conditions in the UK remain tight for small businesses in particular, despite the range of schemes implemented to try and make obtaining financing easier. Despite the rise in asset-based lending, it has a long way to go to fill the decrease in more traditional methods of bank lending, which has fallen from £492 billion in June 2009 to just £348 billion today.
We'd love to see the high street banks recognise the importance of lending and improve access to funding for businesses. But until this happens, it looks like businesses are going to have to look for alternative sources of finance such as asset-based finance.