As companies digest the plethora of negative news around the state of the UK market, it is easy to set our mindsets into “weather the storm” mode. However, is this actually a time for bold moves to push growth? Some experts determine that economic uncertainty, even downturns, can present the best opportunities for growing your business while others are hunkered down.
Our corporate team give some insights to areas where companies that are strong strategically and financially can leverage opportunities to grow, and discuss where there may be increased opportunities for those who are already considering a managed exit.
Opportunities for growth:
- Strategic mergers or acquisitions
Economic uncertainty affects the entirety of the marketplace, all businesses alike will be feeling similar pressures in terms of increasing costs, difficulties with supplies, volatile trading and market flux. These challenges can open doors to opportunities for strategic partnerships or acquisitions. Companies may be actively seeking prospects to make use of the advantages these arrangements can create.
Some of the benefits of these acquisitions can be:
- Costs savings. Combining businesses can reduce overheads by removing the need for duplicated functions, personnel and even facilities or real estate.
- Access to new markets and/or distribution channels. Acquired or merged business may open access to new customers, markets or provide distribution channels previously inaccessible.
- Talent acquisition. New talent may be brought in which can compliment or enhance the workforce.
- Other economies of scale such as process efficiencies, access to funding or capital, improved economies of scope and enhanced research and development.
- Acquisition of competitors
A more straightforward opportunity may be the acquisition of a struggling business. Assessment of the market and an ability to identify competitors who are not as well placed to survive the difficult times can open to conversations for deal activity.
- Reduction of deal multipliers
Most often in sales or investments an “Enterprise value” or “price to earnings ratio” is used to value a business. This way of valuing a business takes the profits of a business and seeks to determine an appropriate “multiplier” of that figure to land on a price. Determining what the appropriate “multiplier” will be is often tricky. Many factors will contribute to the analysis of this. Certain business sectors, such a tech start-ups, have higher multiples due to the level of rapid growth expected in these sectors. En vogue sectors similarly carry higher multipliers. However, where economic uncertainty is a concern for the whole market, it is often the case that we see these multiplier numbers decrease. As such companies that are actively seeking a sale may be open to lower transactional values.
Exit Opportunities
- Overseas purchasers
Historically a weak pound has made UK companies more attractive to foreign purchasers due to the lower cost of acquisition in their local currency. As the strength of the pound decreases the pool of potential purchasers for a company seeking a managed exit of shareholders may indeed increase due to the ability of foreign players to bid. Albeit the strength of the pound is only one element of offshore acquisitions, matters such as the geopolitical environment and regulatory issues often drive foreign deals, whilst Brexit continues to have an impact on transactions, the value of UK companies may help to negate this.
- Trade Sales
As detailed above, the lack of certainty in the current market often drives consolidation. Where previously businesses have maintained an ability to trade independently, the advantages and often necessities of cost savings are likely to drive an appetite for strategic growth and alliance. As such trade sales may increase between competitors. Now may be the time to open discussions for a desired exit as financial strategy is at the forefront of many board conversations.
Conclusion
If you are considering taking advantage of any the above opportunities, the Wright Hassall Corporate team is here to help. If you would like an exploratory call to discuss growing or exiting your business, please don't hesitate to get in touch with either Freya Summers or Robert Lee.
