Bees Gather Around the Business Honey Pot (September 2011)

Bees Gather Around the Business Honey Pot (September 2011)

They say that the business transfer market has been, for some time now, a bit like the curate’s egg – good in parts. Since the recession took hold in late 2007 this has certainly been the case and there are certain sectors of the market which have definitely suffered more than others. Conversely, we at Beardsley Theobalds appear to have weathered the storm rather better than some others, primarily because we specialise only in those sectors of the market which have fairly universally continued to be of significant interest to large numbers of prospective buyers – those in the industrial, commercial and business services arena and likely to be operated from premises on industrial estates or business parks or from a fleet of lorries or from home (as opposed to the historically more popular retail, catering and leisure sectors). The downturn in the economy has tended to focus the market’s mind on businesses making real money and providing decent returns on the investment needed to acquire them as opposed to, for example, ‘lifestyle’ businesses. Increasingly, people are looking to buy businesses which will considerably improve their lot and their numbers have swelled very significantly in recent years. In addition to all the usual suspects who constantly make up the business transfer market they now include high numbers of people in the following categories :-

 

• people who have been made or are shortly to be made redundant, especially those in the 35 to 55 age group.

   

• people who have cleared their mortgages and whose children have grown up and left home and are now ready for a real change and a new challenge.

   

• people looking for much higher returns on their capital than they are currently achieving.

   

• people looking for a business for a member of their family to run.

   

• people who sold a business and/or property prior to the recession who now believe the time is right to re-enter the market.

   

• people returning to the U.K. after living abroad.

This has led to a situation where there are presently more people than ever before looking to buy a business! In turn, the level of demand has created something of a phenomenon concerning the acquisitions of businesses and this is highlighted by Beardsley Theobalds’ experience in negotiating sales this year : whereas last year when ‘non-refundable deposits’ were taken in respect of approximately 25% of total business sales, the figure this year to date is a staggering 56%. The reason for this trend can be explained by the fact that when a quality business becomes available the bees tend to circle the honeypot. Consequently, with so many people aspiring to acquire really profitable businesses, opportunities arise to form strong markets for such businesses and this can and does lead to bidding wars (yes – even in today’s economic climate!). The upshot in these circumstances is often deals being agreed in excess of marketing prices and non-refundable deposits being lodged to secure the deals. These deposits have ranged from as little as £5,000 to £25,000 and have represented anything from 2% to 25% of the agreed purchase prices.

Naturally, once a non-refundable deposit has been accepted the subject business is taken off the market and the buyer is entitled to an agreed period of exclusivity during which to complete his/her purchase. This, of course, gives the buyer and the seller a significant amount of confidence and comfort as they spend time and money in their pursuit of completing the transaction. It also helps sellers to make decisions on which is the best deal to accept (which might not necessarily be the best price offered!).

Will this become an increasing trend generally across the market or is it simply something which is peculiar to Beardsley Theobalds and the current market conditions? Only time will tell.

Roger Mundy, Managing Director, Beardsley Theobalds