Ask the Expert with Steve Plaskitt: Selling a business

Steve Plaskitt, our Corporate Finance Partner, gives his expertise to shareholders considering if now is the right time to sell their business.

No-one could have expected that 2020 would turn out to be such an annus horribilis for the UK – with the COVID-19 pandemic having a dreadful impact for those who fear losing their jobs, their livelihoods or their loved ones.

It takes a huge amount of mental strength for all of us to find a way through these difficult times and the emotions that many feel are explained by our stone age brains facing a crisis and continually dealing with it with our innate “fight or flight” response.

At times like this, it is understandable that some business owners would doubt themselves and question whether they want to fight on and continue or whether they believe that the time would be right for taking flight, selling their shares and for another company or the next generation to take on the responsibilities of running their business.

So for those who want to explore your options and test the market you may simply want to know whether you can find a buyer which can buy the business at a price you would accept.

As a corporate finance adviser, it is my job to find the buyer at the acceptable price and complete the deal.  The first step is to provide strategic advice and to look at different perspectives to assess whether you would get a good valuation by selling now.

Are the market conditions favourable?

Following the rollercoaster ride of the stock market demonstrates that not all UK listed plcs are finding it easy.  Some sectors are doing much better than others, including:

  • Software;
  • Next generation energy technologies; and
  • Health and safety

MHA Tait Walker has sold business in these sectors this year.

And there is still plenty of private equity investors keen to invest in management with attractive businesses.

Would my business appear attractive?

Beauty is in the eye of the beholder – and that is true in business.  In general, a buyer would find you attractive if:

  • You have reported increased sales and profits in the period since March 2020 as this is evidence that their business model is COVID-19 resilient
  • You own your own intellectually property
  • You can demonstrate recurring revenues and profitable contracts
  • You have a good growth plan and can see continued growth for the next few years
  • You have a second tier of management that can run the business without you.

Sometimes the question of timing is important.  Currently the tax regime is favourable for the SME business owner.  A husband and wife shareholder company can benefit from Business Asset Disposal (BAD) Relief at 10% for the first £2m of the price, assuming they meet qualifying criteria, and the rest is taxed at 20%.  We know a review of Capital Gains Tax is being completed and this may mean that the BAD Relief is short lived or the tax rate may increase to 25% or more after 6 April 2021.

Such an increase may encourage some owners of SMEs that make currently profits of below £1m to consider starting a sale process now to complete before any future tax changes.

Testing the market in this way is most likely to succeed if the buyer is regularly acquisitive or if the buyer is already known to you as these should make the due diligence process quicker. 

By testing the market now, you will either find the right deal or rule out this option and then you can remove any doubt about your decision.

The answer though should not just be about whether you can sell now at a price that you would find acceptable, it’s about whether you feel you can continue with the same levels of commitment, drive and ambition for the next three to five years that will be required to get through the COVID-19 pandemic. 

If you can, market conditions will become more attractive in the medium term, and you should re-commit to the business, devise a great business plan and be prepared for the fight.