The perfect time to buy a business – if you can find the funds
http://jobs.telegraph.co.uk/career-article/620/the-perfect-time-to-buy-a-business-if-you-can-find-the-funds
Date: 07/09/2011
The businesses-for-sale marketplace http://www.amberglobe.co.uk/search.aspx is rich with promise for bargain hunters with enough capital to bypass the banks, according to leading professionals in business transfer.
Speaking to BusinessesForSale.com, agents also report that the dwindling number of businesses with healthy balance sheets are more in demand than ever as entrepreneurs seek reliable investments in a turbulent economic climate.
Providing they are patient – deals are increasingly tortuous, collapsing more frequently because of nervous buyers, sellers and banks – cash-rich buyers can capitalise on the desperation of some sellers to exit amid challenging trading conditions. Caution and the dearth of credit is inhibiting activity so buyers armed with ready cash have less competition for the best opportunities.
“Sellers will get the red carpet out for a buyer who can proceed,” says Michael Taylor, director of leading business transfer agency Everett Masson & Furby (EM&F). “It’s definitely a buyers’ market – especially if they have cash in their pocket.
“Cash buyers can act quickly – a major advantage in trading conditions arguably at their toughest since the 2008 financial crash. Some people are under pressure to get out, so if you offer an escape route then people will take it,” says Taylor. “Many people can only afford to buy a business subject to selling their property, which many are struggling to do.”
Nevertheless, according to one corporate finance expert, a buyer with enough liquidity to buy outright shouldn’t overlook the possibility of leveraging an acquisition. “It’s a fantastic market for buyers with cash because you’re getting an excellent return on your investment,” says Amberglobe managing director Rupert Cattell, who points to rising inflation as a golden opportunity. “You’re buying yourself a job, and it’s a good idea to gear it a bit because your debt is going down if you have inflation. As value of your investment rises your debt will fall.”
Healthy businesses are widely seen as a comparatively reliable investment given continuing volatility in other investment classes and rock-bottom interest rates. So although many buyers are apparently locked out of the marketplace, there is no shortage of interest in successful businesses.
“A quality property will sell,” insists Taylor – but only if “priced realistically”. Cattell says that a struggling business, by contrast, is incredibly difficult to sell, and that “many sellers are refusing to sell for less than a certain price.
“It’s very price-sensitive, so if you are overpriced you have no chance of selling your business.” He adds: “We’re also seeing buyers trying to gazunder, which is upsetting vendors.”
But three years on from the collapse of Lehman Brothers, Taylor senses that a dose of realism has finally been administered to the marketplace. “Business owners are starting to realise that if they want to sell their business, they have to be more realistic with their asking price. Buyers are looking for a bargain; they’re not going to overpay.”
The few buyers willing to meet optimistic asking prices are increasingly undermined by the banks. “Everything is getting a bank valuation,” says Cattell. “So even if you get an agreement at a fantastic price, it will get unpicked before the deal is done because the bank valuation will come in at the market rate.”
Vendor financing, where the seller agrees to effectively play the bank’s role and accept payment in instalments, is increasingly bridging the gap. “Vendors generally seem aware that they might have to leave something on the table themselves,” says Cattell, who sold a brokerage in 2007 before setting up Amberglobe. “They don’t generally want to – but they often have to.”
Where there’s a will, there often isn’t a way, bemoans Taylor, who worked in business banking before becoming a business transfer agent. “It’s taking forever to get a decision from the banks. It really is a long, hard slog getting a deal over the finishing line and the slightest wobble is causing deals to collapse. The number of deals which fail is still high.”
Adds Cattell: “Some banks are simply not lending at all. They’re simply shut – despite what they say.”
More than ever, patience is a virtue. “You need a sensible debt-to-equity ratio, a track record and a good business plan,” to persuade banks to part with funds, insists Cattell. “They will take a long time to make a decision and you need to do your homework before you put in an application.”
So which sectors are buoyant enough to reassure risk-averse banks? “Day nurseries are doing pretty well, kennels and catteries are solid,” says the former commercial lawyer. http://www.amberglobe.co.uk/sales.aspx
He also cites manufacturing, recently held up as a solitary bright spot in an otherwise gloomy economic landscape, although recent figures suggest output levels have dipped. “Because many manufacturers have gone bust, there are fewer competitors to the firms that remain.”
Michael Taylor suggests unusual or novel niches are worthy of consideration. “We’re finding there isn’t much demand for what I would call the ‘oddball’ sectors. Everyone knows what a newsagent does, but people tend to shy away from businesses if they don’t understand them. You can pick up a good ‘oddball’ business for a realistic price and get your money back within a year.”
Internet-based businesses attract huge interest due to a compelling mix of affordability – you rarely need to buy premises – and soaring online spending – 19% higher over the first half of 2011 than the same period last year, even though the traditional high street is struggling. “We get a lot of interest in online retailers, which can be operated from home or industrial parks rather than in the city centre where you’ve got big rent and rates,” explains Taylor. “The secret is low overheads,”
Success stories
Taylor believes uniformly negative media coverage is obscuring success stories. “There are good business opportunities out there. The way the media reports it you’d think every business was going down the tubes, but there are some very good businesses out there” – often in the least expected of sectors.
“Take the village shop. Some of them are thriving because people won’t travel to the supermarkets because of the cost of fuel.” In 2008, with the financial crisis still unfolding, former M&S chairman Stuart Rose recalled sympathising with a village shopkeeper about how tough the recession was for small independents only to be told that the shopkeeper had never seen his shop so busy.
If the relentlessly bleak tone of economic analysis in the media has made buyers cautious, it hasn’t deterred them from showing an interest in businesses on the market. Rupert Cattell reports a relatively high volume of enquiries for businesses on Amberglobe’s books.
“There are lots of buyers around, but they are kissing a lot of frogs and taking a long time. Many are possibly dreamers, which could reflect the huge numbers of people worried about redundancy.”
Buyers and sellers alike, it seems, have every reason to believe they can find plenty of value in the current marketplace, even though so many are inhibited by fear and act with excessive caution. The challenge is to heed the tough environment, being particularly fastidious with valuations, due diligence and business plans, without letting bleak economic news deter you from seizing promising opportunities.
Says Cattell: “People are very cautious in the current climate and the media seems determined to kill any confidence in the market. One bad story about post offices, for example, and a buyer could pull out of a deal in the sector.
“But now is absolutely the time to buy a business, not in boom times. Fortunes can be made in bad times.” http://www.amberglobe.co.uk/testimonials.aspx
http://www.amberglobe.co.uk/
Wednesday 7 September 2011
August Vendor Report
Now that summer(?!) is over I think we are in for a period of increasing volatility in the financial markets. This will obviously do nothing for consumer confidence and the attitude of the banks. However I guess that’s nothing really new as we have all been trudging through treacle for the last three years anyway and I think most businesses have adapted and got used to the changed market conditions.
http://www.amberglobe.co.uk/search.aspx
Our levels of buyer enquiries have remained very consistent over the last three years. We keep a weekly record of all buyer enquiries and in fact the statistics show that we are getting a rising level of enquiries as a percentage of the number of businesses on our books. So buyer interest and demand remain strong.
That being said we are fighting in the trenches on just about every deal to make them happen. Banks are slow and cautious, lawyers are equally slow and landlords are just a nightmare. I know that many vendors probably think that agents do very little for their commission but if I can just say that we reckon that once we have obtained an offer for your business we still have at least 50% more work to do to get your deal over the line.
http://www.amberglobe.co.uk/sell.aspx
Because of the length of time that deals are taking to complete, tempers do get frayed and we see what is known in the sector as “deal fatigue” occurring. If I can just say that as a vendor you will need to dig very deep into your store of goodwill when you sell a business. You may well be driven to distraction with what you perceive are endless petty demands and changes requested by the purchaser, his bank or his solicitor. I have never met a vendor yet who didn’t start to get seriously hacked off by the demands of the deal. So if it happens to you please rest assured you are not alone! And if I can offer one small piece of advice it is just to keep your eye on the prize and focus on completing the sale of your business. In the weeks and months after completion all the many slights, demands and frustrations will fade away....but you will have your money and you will have sold your business.
http://www.amberglobe.co.uk/
http://www.amberglobe.co.uk/search.aspx
Our levels of buyer enquiries have remained very consistent over the last three years. We keep a weekly record of all buyer enquiries and in fact the statistics show that we are getting a rising level of enquiries as a percentage of the number of businesses on our books. So buyer interest and demand remain strong.
That being said we are fighting in the trenches on just about every deal to make them happen. Banks are slow and cautious, lawyers are equally slow and landlords are just a nightmare. I know that many vendors probably think that agents do very little for their commission but if I can just say that we reckon that once we have obtained an offer for your business we still have at least 50% more work to do to get your deal over the line.
http://www.amberglobe.co.uk/sell.aspx
Because of the length of time that deals are taking to complete, tempers do get frayed and we see what is known in the sector as “deal fatigue” occurring. If I can just say that as a vendor you will need to dig very deep into your store of goodwill when you sell a business. You may well be driven to distraction with what you perceive are endless petty demands and changes requested by the purchaser, his bank or his solicitor. I have never met a vendor yet who didn’t start to get seriously hacked off by the demands of the deal. So if it happens to you please rest assured you are not alone! And if I can offer one small piece of advice it is just to keep your eye on the prize and focus on completing the sale of your business. In the weeks and months after completion all the many slights, demands and frustrations will fade away....but you will have your money and you will have sold your business.
http://www.amberglobe.co.uk/
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