Quality Businesses Achieving Premium Prices
They say that the business transfer market has fluctuated for some time, but is now undoubtedly much better in certain sectors than in others. Since the financial crisis and ensuing 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 which are likely to be operated from premises on industrial estates or business parks or from a fleet of lorries or even from owners’ homes (as opposed to the historically more popular retail, catering and leisure sectors). The downturn in the economy since the financial crisis has tended to focus buyers’ minds 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 types 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 60 age group.
- people who have cleared their mortgages and whose children have grown up and left home and are now ready for a 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 currently 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 34% of total business sales, the figure this year to date is a staggering 58%. The reason for this trend can be explained by the fact that whenever a quality business becomes available a very significant number of seriously interested prospective buyers are usually attracted. Consequently, with so many people aspiring to acquire really profitable businesses, opportunities arise for us to form strong markets for such businesses and this can lead to bidding wars (akin to auctions) when premium prices are achieved. The upshot in these circumstances is that deals are agreed in excess of realistic marketing prices and lead to non-refundable deposits being lodged to secure those deals. These deposits have ranged from as little as £5,000 and up to £50,000 and have represented anything from 2% to 10% 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