Date05 Oct 2023
This year, 50% of business exits have stemmed from an unexpected approach from a buyer, however many business owners have failed to maximise shareholder value because they are ill prepared for the ‘tap on a shoulder’ approach, according to our research*.
An unsolicited approach is when a buyer such as a large corporate, private equity house or competitor makes a direct approach to ask if the owners will sell.
The unsolicited approach has become increasingly common since the pandemic and reflects the strong cash reserves built up by corporate buyers who want to execute their Board approved growth plans and make strategic acquisitions.
Additionally, private equity investors have raised billions in funding and are highly focussed on deploying it for acquisitions, driving sector consolidation, as part of their ‘buy and build’ strategies. This tactic generally leads to utilising the ‘tap on the shoulder’ approach.
The SME sector is rife with innovative, ambitious and entrepreneurial companies, so successful businesses can easily land on the radar of acquisitive corporates, whether they are based here in the UK, in continental Europe, or further afield, without knowing.
Cold approaches are often extremely flattering and it’s very easy to end up deep into a sales process very quickly. This is both an opportunity and a risk – an opportunity to realise great value for the shareholders, but only if their business is prepared and presentable, but a risk if an approach catches the business owners and management unaware, and results in value well below the business’ full potential.
Unfortunately, nine times out of ten a company is simply not prepared for sale, is immediately on the backfoot and hence find it difficult to gain the upper hand in negotiations.
We encourage business owners to plan for an exit many years in advance, regardless of whether that is via a trade sale, management buyout, or a sale into employee ownership.
If business owners assume that their business is always for sale, they are more likely to prepare accordingly and will be better equipped to manage the unexpected call.
There are four key benefits from taking a strategic approach to exit planning, which are outlined here:
Making time to plan for a sale, regardless of whether one is intended in the short or medium term, is probably one of the most profitable management decisions shareholders and their boards can make.
Our research indicates that the majority of successful businesses leave exit planning to the last moment. We encourage business owners to add ‘exit value’ to board agendas to focus minds on getting exit ready, even if a planned sale is not imminent.
*Azets reviewed corporate finance transactions advised by the firm over the last three years.