Now the Office of National Statistics says that acquisitions and disposals (excluding outward disposals) in Q3 of 2013 were down to their lowest levels since Q1 of 1987 when records of such deals were first collected.
But hear me out when I say you might just be getting a call. Here’s the thinking.
There are 3 types of messages you might receive:
- Industry growth demands
- Private Equity
- MBO (Management Buy Out)
Industry GrowthWe’re already seeing it in the automotive industry in the UK. There is a trend of companies starting to go back to on-shoring the supply chain. And it’s companies like Jaguar Land Rover that are driving it through demand.
The car industry contributes over £60bn in GDP to the UK and employs 317,000 workers. As demand for new cars hits an all time high, the supply chain is being required to match the demand. But unless you’ve been under a rock for the last 2 years you’ll know that finance and funding has been hard to come by from the banks – and the only way sometimes is to get equity finance instead.
So we’re starting to see mergers and acquisitions in industries where consumer demand is pulling demand through the supply chain.
So acquisition might at first glance seem attractive, but how do you know?
Let’s look at trend supposition two, Private equity
The aging of the Baby Boom entrepreneurs, the first generation to embrace labour mobility, in that you don’t have to work for someone else and thus creating the first wave of setting up your own business.
- This is creating the transition and succession of family-owned companies from one generation to another – it’s happening now!
- But even though the rise of the Millennials (I actually don’t like all the Gen Y, Gen X stuff), who may well be just as entrepreneurial if not more, may well not necessarily have an interest in stepping into the family business.
- Then there is the large global private equity pot built up during these past years which has been generated by low interest rates and attractive investment tax breaks. The large private equity overhang, which is the amount of cash raised by private equity funds but not deployed is making portfolio managers start to look for new opportunities.
- Low investment by larger companies in the past few years has built these companies large cash stockpiles and that coupled with the rise of shareholder activism pressurising companies to use the cash.
Management buy-outs, could be the result of action taken by senior managers in the business based on all of the above (and often funded by the private equity people).
The uncomfortable truths about your unexpected messageMany small and medium sized business owners may be reluctant to sell. For many their businesses are their life’s work, and often their family’s livelihood and all of their futures. In addition they often feel deep loyalties to their communities and employees and fear investors cutting staff, working conditions and sometimes uprooting businesses and moving them.
You need to have a plan
I remember hearing that if you don’t have a plan, someone else has a plan for you.
While valuations aren’t out of hand offers and the subsequent pressures may mount as competition heats up (though you may be wondering why What’sApp was bought by Facebook for $19bn – but that’s another story – it’s basically taking over text traffic around the world).
So you might need a plan and you definitely need some help
1. The Appraisal
It might cost, but you might think about getting an appraisal of your business along the lines of a trial due diligence.
Get some reviews of your current and future business situation. Be clear and honest about the opportunities and the pitfalls you and your business might face.
Make sure you include a financial review that reflects any numbers that a buyer might not find important.
The process of preparation can also give you a lot of insight into whether you’re emotionally ready to sell, he says.
In truth, if you’re not ready for someone to take an honest impartial view of your business, you’re possibly not ready to return the call to that investor or acquisitory approach.
2. Industry review
What is the trend of your industry? Can you keep up? Can you differentiate yourself and make a difference?
And this is the great thing. You know your industry better – or should. What are the trends and how good will you be to react?
3. Think about the longer view
Do you have a plan? Do you have a one year or a longer term view. Are your patents just about to come to fruition? Is your market booming. What will it cost you to make it happen? Can you raise the finance?
Create a 3-year business plan. Or longer.
4. Get some help
It’s hard making all the decisions. It’s hard and often you can’t rely on friends and family to give you the best advice.
How about asking Vistage about the groups that are available. You can get advice, ideas and the experiences of the Chair and other members – and all the bigger picture ideas of the wider network (That’s the selly sell bit).
But seriously, how prepared are you. Take action now and have your own plan.
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