AT Howes Percival the demand for my team of lawyers who specialise in buying and selling businesses has increased dramatically over the past few months. It mirrors the return of transactional activity for our residential and commercial property lawyers. We haven’t been this busy since before the banking crisis.
There are still some key differences from the 2008 days, and these should be carefully borne in mind by potential vendors of businesses.
Firstly, buyers are still cautious and take their time. As a vendor, I don’t believe you can – yet – expect to dictate terms.
AT Howes Percival the demand for my team of lawyers who specialise in buying and selling businesses has increased dramatically over the past few months. It mirrors the return of transactional activity for our residential and commercial property lawyers. We haven’t been this busy since before the banking crisis.
There are still some key differences from the 2008 days, and these should be carefully borne in mind by potential vendors of businesses.
Firstly, buyers are still cautious and take their time. As a vendor, I don’t believe you can – yet – expect to dictate terms. Buyers are still easily put off by getting the wrong feel for a transaction, and will happily walk. And it is likely to take months for you to find another buyer.
Secondly, there is still a very limited ability for banks to fund transactions, especially the MBO activity that was such a feature of the last decade. So the buyers out there are predominantly cash buyers, and in our experience many are from overseas, particularly from Europe. That makes them very risk aware. Quite often they are dipping their toes into the UK for the first time.
They are unwilling to accept what we regard as market practice on normal terms of the contract. You are likely to have to take more risk and sign a less vendor-friendly contract, if you want to sell.
That said, there are some similarities to the 2008 experiences. There is a marked return to deals having to feature earn-outs, where a proportion of the purchase price is paid in the years following completion, dependent on performance of the business during these years. The problem for the vendor is that he has then lost control of the business. Can he trust the buyer not to upset – and lose – a major customer? Can he trust the buyer not to divert sales to another part of the buyer’s group? These are awkward – but necessary – issues to debate in the negotiations. It requires good advice, a poker face, and strong nerves!
If you are considering selling your business, I always recommend early planning for the sale. With the help of your lawyers and accountants, carry out a health check on your business. Are its documents and practices as robust as you think? Would they stand up to the scrutiny of a full due diligence exercise? Should you be putting key customers and suppliers onto formal contracts? Are your employment contracts and HR policies fully compliant with the law as it not stands? Can you show you are fully prepared for pensions auto-enrolment? Are your management accounts prepared in line with your year-end accounts? Much better to be able to sort out these issues when you have time and don’t feel you are on the back foot.
Lastly, for most business owners, the sale of their business is something they will do only once in their lives. So take proper advice from experienced lawyers and corporate finance accountants who specialise in this work. Their experience can add value and prevent value eroding away. They will have seen most situations before, can anticipate them and guide you safely around them.
At Howes Percival we regularly work with all major firms of accountants in the county, and as regular readers of Business Times will have seen, have been involved in the sale of some significant businesses in the county over the past 30 years or so. Our reputation for successful sales of businesses is second to none. I would be pleased to talk to you in confidence at no charge if you think that the right time to sell your business is here, or will be soon. You can contact me at or telephone 01604 230400.
