A report from the European Commission has affirmed that the promoting of growth and development of small- and medium-sized enterprises (SMEs) is key to the continent’s economic recovery.

Senior MEP Malcolm Harbour said that the report had shown that 85 per cent of the new jobs being created in the EU are with SMEs as opposed to larger multinationals. He explained that the report “highlights the imperative role” that entrepreneurs and small business owners are playing in the recovery of the continent’s ailing economy.

“It should act as a wake up call to EU member states who are not yet putting small businesses at the forefront of every action they take,” Harbour – who is chair of the parliament’s internal market committee – told fellow MEPs.

“Small businesses will act as the engines to pull us out of the economic quagmire. If we stand in their way then we stand in the way of economic growth and employment.”

He hypothesised that if each of the EU’s 23 million SMEs took on one more member of staff, then it would end the unemployment problem straight away. He endorsed the single market view of Europe and said that the EU should work to create open markets and enhance the conditions for innovation – and then “get out of businesses' way”.

The north west of England saw the number of private equity buyout deals carried out in the region in 2011 rise, compared to the figures for 2010.

The figures for the region – which includes the urban hubs of Manchester and Liverpool – bucked the overall national trend by seeing the number of transactions rise to 26, up from 18 in 2010. The value of the transactions also increased significantly, by 10 per cent to £1.75 billion, according to the Manchester Evening News.

The national figures saw a year on year decline in transactions from 183 to 176, according to the figure from the Centre for Management Buyout Research.

Steve O’Hare, northern partner at Equistone Partners Europe, which sponsored the research, said: “Despite difficult trading conditions and uncertainty in the Eurozone in 2011, private equity activity in the north west remained buoyant.”

O'Hare explained that the figures highlighted the strength and dominance of the region's small and medium-sized enterprises, as well as the canny business acumen of the workforce. He said that the investment that was being drawn to the region was making for a very good outlook to business prospects in 2012.

The largest single deal that was carried out in the region was that of Bolton-based Integrated Dental Holdings for £574 million.

A new report on business distress in Britain's motor dealerships has shown that one in five of them are unable to pay their short-term debts and liabilities.

The latest Baker Tilly/Company Watch research on motor dealerships has found that many dealerships have remained solvent only due to riding the benefits they have obtained through the scrappage scheme. The figures showed that nearly one in four of the dealerships, with a turnover of between £5 million and £25 million, saw their pre-tax profits fall by 50 per cent or more in the last 12 months.

Head of Motor at Baker Tilly Restructuring and Recovery, Graham Bushby, said that the industry was facing the major challenge of rising costs.

"The pursuit of sales is being hampered by global inflation and margins are being squeezed more so than ever," he said. "There is clear evidence that while the scrappage scheme helped the industry massively in achieving much needed new car sales, it slowed the sales decline rather than prevented it fully."

He added that a "dramatic fall" in sales would be seen in the figures for this year, as buying a new car takes a backseat for consumers, for whom economic and employment uncertainty is leading to depressed consumer confidence.

The future of the economy looks to be a brighter place for UK businesses as confidence has returned to pre-recession levels, say BDO Stoy Hayward in its latest report. The accountancy firm’s Optimism Index rose from 99.4 to 103.2 in March; a high not achieved since the summer of 2006. The Output Index also improved, and has reached quarter three 2007 levels due to businesses re-stocking.

This renewed optimism is reliant on the three main political parties outlining their economic policies for the future, however, according to BDO.

The accountancy firm said: “The lack of information from political parties regarding concrete plans to tackle the deficit will be contributing to business uncertainty which in turn is keeping investment levels low in 2010.”

In other encouraging news, activity in the construction sector of the economy picked up last month according to the British Chamber of Commerce. The CIPS Markit PMI construction index rose from 48.5 to 53.1 in March the first time in two years. However, construction businesses might be vulnerable to reduced government spending on building and infrastructure projects. Read our guide on how to buy a construction business by subscribing to the Business Sale Report.

Is there a silver lining to the low value of sterling that has hit the headlines in recent days? According to experts, our exports will be cheaper and so boost manufacturing, companies with foreign earnings will be in a good position, and we will see more tourist pounds in our shops. With regard to the export sector this has not fared as well as had been expected but this is more likely to be to do with weak demand in our export markets such as the eurozone. More about the eurozone later.

At the Business Sale Report, we think there might be another reason the cheap pound could benefit UK plc. Business owners who are thinking of selling would do well to investigate the possibility of marketing the business abroad. Overseas investors can buy larger businesses in the UK than they would have been able to do in the past. Of course, revenue would still be in sterling but if, after holding the company for a while, the currency appreciated then the investor would make a profit on the sale. Inward investment is bound to help UK plc. A recent survey by Standard and Poors has also suggested that businesses with strong overseas earnings, particularly in Asia and America, are attractive to other UK firms looking to increase revenues and hedge their currency risk.

In our view, sterling is undervalued for a number of reasons. In the first instance, the markets have become concerned about the possibility of a hung parliament, which is not necessarily a bad thing given that there is less to separate the main political parties these days, but it does create uncertainty. Markets hate uncertainty more than anything. However, once a new government is formed it simply will not survive unless it has a credible policy to cut the deficit. This should help to support sterling.

So what about the Euro? Against the pound it looks strong at the moment but the eurozone’s problems are really only just beginning. There will need to be deep cuts in public spending in Southern Europe and they will have to lower wages and prices in order to remain competitive with Germany, the strongest economy in the Eurozone. Unless Germany can power ahead with strong economic growth to offset the problems in the the weaker european countries then the prospects for the euro are not very good in the medium term.

The weak pound is also, in some part, due to the perception that we have a poor manufacturing and export base, so increased competitiveness in exported goods is not going to benefit us. This is not really true. The UK is among the leading exporters of manufactured goods in the world. Germany and China, of course, are way out in front, then comes the USA, followed by Japan. But in fifth, sixth and seventh places, in a tight group, are the UK, France and Italy. What is more some of our manufactured goods like defence, where we are a global leader, are seen as having better than average growth prospects. After all, the world doesn’t seem to be getting any more peaceful.

The weak pound has fuelled the UK’s export market to such an extent that British exporters are more confident about future export growth than their counterparts in the Eurozone, according to the latest European Business Trends report by accountants and business advisers BDO LLP.
However, while UK confidence around exports is increasing, so too is the threat from inflation. The BDO Inflation Index reveals that Britain experienced the largest ever increase in the annual rate of inflation in the fourth quarter of 2009. The BDO inflation index rose 99.2 in January, a significant increase compared to October 2009’s reading of 93.8. This compares to the Eurozone inflation index which rose to 89.6 in January from 89.2 in October. This may indicate an earlier raising of interest rates which will help underpin the value of sterling.

Also it is quite clear that the Bank of England’s remit is to target inflation and economic stability, not exchange rates. Whereas many countries have made it clear that they are very keen to keep a high value currency, no matter what. This of course is bound to attract capital inflows and speculators at the expense of the pound.

The currency issues aside, UK plc is still a very good place to do business especially when compared to other countries. Perhaps the most obvious advantage that the UK has over other European countries is its flexible labour laws, which translate into lower hiring costs, uncomplicated takeover rules, and a generally non-protectionist government that welcomes foreign ownership of UK companies.

In another indication that the UK can expect to witness a selection of distressed businesses for sale towards the latter end of 2010, the government has been warned of a ticking time bomb of company closures and job losses when its "time to pay" scheme ends.

The £4.8 billion programme, which lets businesses delay their tax payments, has been credited with keeping some 160,000 firms afloat during the recession by preventing HMRC payments pushing them into liquidation or administration.

However, it's expected to be axed after a general election, leading financial experts to predict a wave of liquidations when companies are forced to pay their delayed VAT, national insurance and other tax bills.

Colin Burke, a partner at corporate rescue and recovery firm Milner Boardman, affirms that numerous businesses aided by the scheme have increased the size of their debts to the government.

"This leaves HMRC with no option but to take action to prevent further default and recover the arrears, thus triggering formal insolvency proceedings," he continues to the Independent.

Whereas such proceedings were evenly spread over a period in the past, Burke concludes, in this instance a backlog has been created which some fear will lead to "a tidal wave" of business failures.

The Treasury maintains that suggestions the "time to pay" scheme will end suddenly run counter to what it was originally set up to achieve.

Accountancy firm BDO has unveiled its latest Private Company Price Index (PCPI) and it shows that valuations of both public and private firms shot up in the course of last year.

From October to December 2009, the average price/earnings multiple of London-listed companies increased to 15.1, marking a 78 per cent rise on the figure recorded at the end of the first quarter of the year. It also represents the highest level since the peak of 2007's M&A boom.

Private firms are selling for 11.9 times profits, according to the data, pointing to the highest level since early 2008 and an 18 per cent increase over the last three quarters. The figure is 12.0 times earnings where private equity buyers are involved.

Christopher Clark, M&A partner at BDO, comments: "We've seen a pretty dramatic recovery in public market multiples, particularly during the second half of 2009, as well as a mini-recovery in private company valuations."

He attributes the recovery to rising public company valuations giving buyers more confidence to pay higher prices, a shortage of quality assets and a pent-up supply of private equity capital.

The number of transactions completed still fell for the eighth successive quarter, however – to 445 acquisitions. That's a 20 per cent drop on both the third quarter of 2009 and the same period a year earlier.

And while credit availability may have picked up in the course of last year, it is still only available for the very best assets – and at significantly higher margins.

Overall Clark identifies "plenty of positives" for buyers in spite of tax increases and public spending cuts on the horizon: "Improvements in the debt markets are likely to continue, and there will be a degree of catch-up following de-stocking during 2009."

Many private equity houses, which in most cases have funds with predetermined investment periods, have lost 18 months of deal activity, he concludes: "They will be looking to invest and make up for lost time, as well as realise some of their more mature investments."

The UK’s retail sector faces another “bloodbath” on the high street next year, according to insolvency specialists. They point to decreased spending and rising unemployment as reasons to expect a wave of administrations echoing the events of early 2009.

In spite of improving sales figures and a boost in sentiment, 86 per cent of insolvency practitioners polled by industry body R3 believe this year’s drop in spending will prompt the collapse of more retailers after Christmas.

Another factor singled out for the predicted disappearance of over 20 household names is creditors “biding their time” until after the peak trading period before they call in loans. January’s VAT increase is a further cause of pessimism for retailers.

“While it would be comforting to think that the worst of the downturn is over, it’s worth remembering that insolvency peaks after a recession ends,” remarked R3 president Peter Sargent. “We urge retailers to seek advice early when there is a better chance of rescue, rather than desperately clinging on, hoping that Christmas will cure all ills.”

In the opening months of 2009, around 22 high-street retail staples went into administration, including Woolworths, music outlet Zavvi, childrenswear chain Adams and tea and coffee merchant Whittard of Chelsea. For up-to-date information on businesses for sale and in administration take a look at our news section.

–>Latest retail businesses for sale.

During the third quarter of 2009 the Private Company Price Index (PCPI), which gives an indication of the average multiple of after tax profits at which private firms are sold for, rose again – much to the delight of anyone looking to sell a business. This is the second quarter in a row that we have seen rising multiples being paid. Please see our previous blog on business valuations rising posted in October.

Although merger and acquisition activity declined in the third quarter, for the seventh consecutive period, the multiples of profits at which business for sale are being sold for increased by 5 per cent. With the 5 per cent rise, people selling businesses were achieving an average of 11.7 times their historic after-tax profit. Of course, it should be noted that these figures relate to announced deals which have an average deal size of £15m. Smaller businesses multiples are lower overall to reflect the increased risk but if you wish to have a guide on the possible value of your business then please feel free to fill out our form for a no obligation business valuation

In addition to improvements in the PCPI, the Private Equity Price Index (PEPI), which tracks the multiples of profits that businesses sold to private equity achieve, also reported good news, rising 4 per cent to 12.3 times.

The continuing slow M&A market can be partly blamed on a more restrictive lending policies, particularly within the leveraged buyout market. This is reported to have offset the benefits an increase in corporate bank debt available to people wanting to buy a business for sale.

The increase in confidence among the corporate finance community has helped to boost the amount of money companies are being sold for. In addition, the number of exit reviews, proposals and pitches is increasing in response to a change in sentiment among business vendors. Many are realising that income and capital gains tax increases will catch up with them next year and that selling a business takes several months to complete – leading to an increase in the number of business being put on the market.

Business Sale Report has seen a 20 per cent increase in listings in the past quarter! To contact the sellers of these businesses then please subscribe.

According to latest figures released by KPMG this week, around half of MBO deals completed over the last three months have involved distressed companies.

The other interesting fact born out by the data is that average deal size has shrunk dramatically from the same period last year. The average MBO deal size over the past quarter was valued at £43 million, compared with £150 million in the third quarter of 2008.

However, senior KPMG partner, Michael McDonagh, said that he was surprised at the low number of distressed deals given how long the recession has had a grip on the UK economy. “The research shows that we are still some way off seeing the private equity market throw its weight behind distressed opportunities.”

KPMG’s view for the next year? McDonagh is betting there will be an increase in deals starting this final quarter of 2009, followed by a further increase in activity early next year.

And what kinds of companies are going to attract the most attention?
According to McDonagh, “What some might describe as dull but dependable businesses with good earnings visibility, particularly with contracted revenues, are far more likely to attract debt support and therefore private equity bidders.”