Foresight Group has made a £3.5 million growth capital investment in fast-growing tech business Looper Insights, in a deal supported by PKF Francis Clark. Looper provides merchandising data analytics to…
For many business owners the decision to exit is the culmination of many years, if not a lifetime, of work. It is the opportunity to realise the value they have been building and is potentially one of the most important decisions they will make.
It is therefore surprising that in many circumstances, we see how little time is spent by some owners in fully understanding what their options are and exploring what might be possible beyond the obvious ‘trade sale’. Understandably, the day to day challenges of running the business can get in the way and even more so in the current uncertain economic climate.
Getting the balance right
The exit process is often a balance between multiple factors including value, succession, shareholder dynamics, retirement planning and what is best for employees and the business. It cannot be defined by a single objective and one size won’t fit all. The range of options available to shareholders is immensely broad. Coupled with some favourable market dynamics means that it is currently a good time to take stock.
The current attractive combination of tax legislation and availability of finance is unique but may not exist forever. We have seen Entrepreneurs’ Relief rules (selling shares at 10% capital gains tax rates) becoming more stringent which is seen by many as the direction of travel even before we consider what a change in government may do. There is an abundance of funding available across the spectrum of debt and equity whilst interest rates remain at historically low levels. The result is a resilient M&A market providing sellers with more choice about how they exit.
Gaining a clear picture to make the best decision
Deciding upon which course of action to take and how to go about it can be baffling. Assessing both financial, personal and business objectives can be increasingly complex often compounded further in family owned businesses where different stakeholders hold diverse objectives.
Perhaps as a result, we are undertaking an increasing number of feasibility reviews on behalf of clients. These reviews allow owners to gain clarity on what the key objectives are and provide awareness around what is available to them before they commit to a plan.
For example, a trade sale will be on the agenda of most owners but for some businesses this is not always possible. Family succession or a management buyout can be a viable alternative and is structured to give the ‘cash-out’ that is being sought (at tax advantageous rates). Owners can choose to de-risk some of their shareholding, realise some value now and meet a range of other objectives including incentivising management, planning family succession and/or retain a stake in the business for potential future upside.
Make it a conscious decision
When times are busy the decision to exit is often deferred and that may be the best for the individual and the business. However, it should be a conscious decision and not taken simply because the day job has prevented time being spent on considering the bigger picture. Early preparation (as ever) is key given a strategic exit can take many months (or even years) to execute.
If you have any queries relating to the above, please get in touch with a member of our Corporate Finance team.