Luke Johnson talks to the Business Sale Report about how he has done business in the downturn and offers advice on buying and selling businesses.
Luke Johnson has owned and directed around 20 businesses ranging from restaurants to dentistry. After selling his Pizza Express in 1999 he set up Risk Capital Partners in 2000 which has been buying and selling businesses every since including large businesses such as Borders.
Yet with the recession impacting heavily on the buy and sell market, Johnson says that now, more than ever, is the time to use conservative assumptions, rigorously test those assumptions about future projections for profits and do plenty of homework. “These are difficult times of epic reckoning,” he says, “that will take a considerable period of time for [the market] to recover and for confidence to return. However, he predicts that online retailing, clean energy, and bargain basement hunting in the property sector will be the best opportunities in 2009 and beyond.
Yet despite the recession, Johnson has continued to add to his portfolio mainly driven by opportunism, inquisitiveness and his desire to diversify. Earlier this year he bought Baker and Spice, a high-end London based niche deli and bakery, after it fell into administration. The business had accumulated debts by unnecessary extravagance. So following extensive cost cutting the business is more profitable and has revenues of £3.5m.
When asked about his intentions on buying businesses he said “I am always looking at new possibilities and actively pursue deals to buy established companies and niche businesses that have distinguishing characteristics that in the ideal world would be a market leader.”
But while now is a better time to buy than sell due to the amount of debt around for buyers to fund and purchase, whether it is actually a good time yet to buy depends on the particular situation that you are looking at, says Johnson. “It has been such a difficult business to predict in 2009,” he says, “and so people are unsure about budgets and projected revenues for this and next year's forecast.”
So how do you go about trying to buy businesses in this environment. Luke says, "There are obviously some bargains to be had, but I don’t think things are screamingly cheap given the prospects”
His top tips for buying and selling businesses are as follows: - Use the best advisors you can afford.
- Take references on the people you are dealing with.
- Never take your eye off the ball of your own business if you are looking to sell it.
- Generally trade buyers are good purchasers of businesses.
- Do not assume any deal will complete as many transactions are falling at the last minute
This is a summary of the article incorporating the interview with Luke Johnson that is available in the subscribers section.
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