Are people buying businesses now?
If I had been answering this question during the early part of 2012 then I would have said “yes, but not that many”. However, since then the situation has changed significantly and during the second half and, in particular, during the final quarter of 2013 the business transfer market picked up markedly. Moreover, between October and December we at Beardsley Theobalds sold more businesses than we had during the preceding nine months and three times the number we sold in the same three months of the previous year! And, for the sceptics reading this article, that’s not three compared with one – it is compared with a reasonably satisfying base considering the economic climate at that time. Furthermore, this improvement continued throughout the period 2014 to 2018. However, during the lead up to the EU Referendum in June 2016, and for a few months after the vote, we certainly experienced something of a lull whilst people paused to reflect on the situation. Nevertheless, despite this and what was for many (especially the so-called experts), a major shock as far as the referendum result was concerned, the improvement in activity in the business transfer market resumed from around September 2016 onwards. Moreover, the situation improved even more significantly following the December 2019 General Election result! Unfortunately, with the advent of Covid-19 in March 2020 and the ensuing restrictions placed on businesses and consumers throughout the rest of that year and into early 2021 prospective buyer activity, not surprisingly, was severely curtailed. However, with the arrival of the anti-virus vaccines and the commencement of their distribution in the UK just prior to the end of 2020, there is now light at the end of the tunnel and optimism is resurfacing bringing with it renewed prospective purchaser interest.
As we now venture further into the next decade we do so on the back of considerably higher levels of prospective buyer activity – significantly more enquiries (from existing and new applicants), increasing numbers of introductions to vendor clients, offers being made and deals done. So, what’s fuelling this resurgence in the market place? Quite simply, it’s a combination of things such as :-
- increased prospective buyer confidence (especially with interest rates continuing at an all-time low)
- a definite requirement to improve household income (given the lack of wages growth in recent years)
- a need to obtain significantly better returns on savings
- a desire to be one’s own boss and be in charge of one’s destiny
- a need for change in peoples’ lives
and, quite simply, and very importantly
- a significant improvement in the availability of funds to enable people to finance business acquisitions – and not only through high street banks.
Some banks, especially the High Street banks, are not as ‘open for business’ as others on the lending front and therefore borrowers certainly need to shop around. It certainly pays to know what the lending market has to offer because some banks (and building societies) are more interested in lending against certain business types and in particular circumstances than others. As always, it’s ‘horses for courses’.
A mixture of Government backed lending schemes and individual lender initiatives has led to a complete change in the landscape as far as the availability of funds is concerned for the purchase of businesses in the SME sector and it is not uncommon for acquisitions to consist of a financial package that might include a combination of Asset Finance, Invoice Discounting, Government’s Enterprise Finance Guarantee Scheme as well as a conventional secured long term loan against a freehold asset. Banks are once again becoming more pro-active and competitive in their approach to commercial lending (and about time I hear you say) and funds are now much more widely available. Deals are being arranged with many at around 3% over Bank Base Rate (BBR) and some with no arrangement fees applying! Lenders are increasingly looking to members of the National Association for Commercial Finance Brokers (NACFB) for good quality introductions. One such brokerage – Mendip Business Finance (where we have been recommending Graham Jones for the past 5 years) – has recently produced the following newsletter which encapsulates some of what we are now experiencing :-
Latest News on Business Funding
As we head into the next decade the lessons learned from the financial crisis and precautionary measures taken have changed the landscape. Appetite for new lending by High Street Banks can best be described as variable and sourcing the lender that best suits your business can be a difficult process without up to date knowledge of which sectors are currently in or out of favour. That does not mean to say that any given business is regarded as a higher risk, it can simply be down to that particular Bank becoming overly exposed on its lending book to one type of business. To remedy this “imbalance” the Bank may consequently apply a more stringent lending policy by requiring a larger deposit and/or reduce the number of repayment years. By contrast there are “specialist” lenders out there who only operate in very few business sectors where they are most comfortable and can draw from many years’ experience.
That said, our experience as Brokers is that lenders are increasingly keen to do business with us and have set up local networks of New Business Development Managers recognising that we add significant value to new cases by assembling every last bit of information required from the very outset and move the process forward far quicker than individuals can achieve on their own.
For these reasons it now makes sense, more than ever before, to engage with a Commercial Finance Broker who will guide you through this financial maze and find the right match for you.
Mendip Business Finance has specialist knowledge in raising finance under the Government’s “Enterprise Finance Guarantee Scheme” which provides participating lenders with the comfort of security when this is the missing ingredient in an otherwise acceptable proposition. Talk to us or e-mail for more information.
Certain fundamentals never change, this includes a thorough understanding of the lenders borrowing criteria and the need to pay careful attention to providing them with a well thought out and fully documented proposal including a business plan and financial projections both of which we help to prepare. “Getting it right first time” is a key element in gaining the confidence of any commercial lender from the very outset as this clearly presents the applicant in the best possible light.
Graham Jones ACIB CeMAP of Mendip Business Finance has decades of experience working closely with lenders, accountants, solicitors and business transfer agents and has consequently built up an enviable reputation within the finance sector. Before becoming a commercial finance broker he worked in the banking sector as a professionally qualified senior business manager dealing directly with a wide cross section of business owners on a daily basis. If you are considering a business purchase then you would be well advised to consult a professional first so that you are fully in the picture. Simply call or e-mail Graham Jones for a free consultation.
If you want to investigate just how much you could borrow (and how much this will cost) to help you to purchase a business, give Graham Jones at Mendip Business Finance a call on 01761 241144.
Meanwhile, mergers and acquisitions are also expected to be a major feature during 2020 (despite upheaval in global markets and the continuing, but now somewhat lesser uncertainty surrounding Brexit) as risk appetite among leading companies reaches a 12 year high! In addition, recent research from such as the manufacturers’ organisation EEF and small business bank Aldermore suggest a vast improvement in confidence compared with previous years, with firms anticipating a further increase in exports to emerging markets. In fact, the manufacturing sector is expected to continue to expand in 2020 at a rate which will maintain U.K. producers’ position as being among the fastest growing in Europe. Even more important, from a UK economy perspective, the dominant services sector (which accounts for circa 80% of total UK economic output) has now re-emerged as the driving force for growth.
Consequently, small businesses and medium size and large companies right across the board as well as individuals, including prospective buyers, are now feeling slightly more confident and ready to embrace future prospects and opportunities and so are likely to take appropriate action during the year ahead. The knock-on effect of all this activity should prove significant indeed.
With increasing numbers of people now buying businesses and with this trend looking set to continue throughout 2020, possibly the only thing which can slow the pace is the availability of quality businesses for them to buy! However, this should not be a problem given the multitude of business owners who have delayed offering their businesses for sale during what they perceived to be relatively poor market conditions (mainly due to the economic stagnation the U.K. has suffered since the result of the EU Referendum was announced), as they have since started to take the plunge. So, perhaps everyone is agreed – it’s time for us all to come out from hiding and get on with things!
Roger Mundy, Managing Director, Beardsley Theobalds