50% of business exits from unexpected ‘tap on the shoulder’

“Most businesses ill-prepared to capitalise” warns expert

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 research* by Azets.

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.

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.

Tim Mills, North West Regional Head of Corporate Finance at Azets, the UK top ten accountancy firm specialising in the SME sector, said: “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 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.”

Azets encourages 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,” added Tim, who outlined four key benefits from taking a strategic approach to exit planning:

• Shareholder value is maximised
• Business continuity is more likely
• Due diligence risk is reduced
• Business performance more likely to improve.

Tim says that 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.

He concluded: “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.”