Paul Mason, Corporate Finance Partner, has analysed the market and identified key trends. Here he reports on the exit market post-financial crisis, and the implications for business owners.
Pre-2008, there was a bull run. Businesses were being bought and sold at a fast pace. There was significant liquidity available from debt and equity investors; this resulted in a wealth of transactions across all business sizes from big to small. Post-2008, you won’t be surprised to hear that there has been a shift. But you might be surprised to hear that it hasn’t shifted too much, and that there are still plenty of investors and acquirers with capital to invest.
The state of the market
We have analysed the Scottish and UK exit market pre- and post-financial crisis and, whilst the number of transactions completed per annum has fallen, the average earnings multiple paid remains broadly in line with pre-financial crisis averages. In short, this means that there are fewer, but higher quality deals completing. There remains plenty of capital available for investment; the challenge for exiting these days is to demonstrate that your business is the one worthy of investment: that it’s a sound opportunity and that the risks are well-managed.
54% – The number of UK exits is now at 54% of the 2007 peak pre-financial crisis average.
Get ready early
Preparation for an exit will mean different things for different businesses. But one common positive step is to create optionality to deliver multiple exit scenarios – that is, have a series of sound plans (not just a Plan B, but a Plan C, D, E and F if necessary) to help maximise business value on exit. And all of your options should involve having a good, robust business with valuable assets (including staff and customers) and traits.
In advance of an exit, it is valuable to get your business into shape early. Think of it like selling a home. If you’re thinking of moving, you might give your house a lick of paint and a tidy in advance of prospective buyers coming round to view. But to add real value, to make your house really attractive, there are better, longer-term structural issues you can address. Get planning permission for that extension, or have the place re-wired. The same principles apply to a business. We call it ‘exit readiness’: identifying and sorting the big key issues that buyers will want in advance of a transaction, and making your business a more attractive investment. Completed disposals which have been through our exit readiness process demonstrate the significant value that is added by what we help you do.
Get in touch with us for a discussion on your business, what your plans are, and what kind of things you can do to prepare.