Guest Blog: Nick Atherton: Playing the M&A percentages in 2017
I think it’s fair to say that even the most prescient could not have predicted the tumultuous year 2016 has turned out to be. The EU referendum, fluctuating currency rates and the US election have all made the market uneasy, and the repercussions will no doubt make trading challenging in 2017. All things considered, business has continued to be solid and the new year will produce opportunities if you know how to navigate the market sensibly. Doing business in volatile climates need not be careless, you can still make a great move and conduct business in a measured way if you know how to ‘play the percentages’.
When the economy is relatively settled, M&A activity usually follows a ‘set menu’. Prospective buyers and sellers are approached, working relationships are forged, wants and needs are identified, and formal negotiations begin based on these desired outcomes. The need for thoroughness is vital at the best of times, but the stakes are higher when facing any kind of economic uncertainty. Advisors with an intimate knowledge of the market can tip the balance in the buyer or seller’s favour, particularly if the appetite for trade is tentative like it currently is. So what can be done? Here are some key points to consider if you’re looking to buy or sell in 2017, a year that will undoubtedly be full of potential stumbling blocks.
Advise to capitalise
The market can be difficult to gauge when you’re running a business of your own with all kinds of considerations to keep in mind. This is where the expertise of an independent advisor can come into its own, giving you the capability to make informed decisions during the negotiation process while still having time to keep your business running as it should. Advisors know how to get everyone on the same page and are especially useful in suggesting parts of a business that would benefit from some streamlining prior to sale, particularly if they specialise in a certain sector such as facilities management or energy.
One of the common mistakes in M&A is a lack of sound research, whether buying or selling. Knowing what you are getting yourself into is vital if you want to experience the real benefits of a sale or acquisition. An advisor can get to know the intricacies of a possible purchase and ensure that the business, and its books, line up as expected so buyers do not inherit a sinking ship. Similarly, if you are looking to sell, an advisor can build a strategy to earn your business the optimum valuation. It can seem like an extravagance to have someone come in and tell you what to do, but invariably the relationship and transaction benefits all parties when there is a broker on board.
Assess the workforce appetite
With markets being uncertain people are naturally concerned about their jobs. This is a hugely important point to keep in mind when thinking about the possibility of inheriting a workforce. It’s not uncommon for a new management team to shake things up when incorporating a new purchase into their existing portfolio. Of course, this can ruffle a few feathers and make a new purchase more hassle than it is worth. Understanding colleagues’ appetite for new management before making a formal approach can save everyone a lot of wasted time and effort.
While the primary incentive for M&A activity is financial gain, conducting business in an ethical and considerate way should be at the forefront of everyone’s’ mind. Getting to know staff and their opinions makes the negotiation process slightly lengthier, but this ‘vetting’ process can be great for assessing the viability of a prospective deal. It makes sense for everyone; no one inherits a dysfunctional business, reputations are kept intact and most importantly staff are content – and it’s clear by now that contented staff are more productive staff.
Sterling has fluctuated wildly, so businesses looking to buy can expect some great value for their money, this is an unavoidable feature of the economy that currently plays heavily into buyers’ favour. However, sellers can still do some simple things to ensure their business sells for the right price, one being simply waiting. Buyers are obviously looking to strike while the iron is hot, but this shouldn’t sway anyone into carelessness. Unpredictability can make otherwise careful decision makers do erratic things, especially when domestic currency is unstable, but sometimes holding back can be the most sensible thing to do. Resisting keen interest is difficult, but markets can change quickly and regret can be a terrible burden to carry into a new project.
Looking oversees, interest in the UK market will remain irrespective of a ‘hard’ or ‘soft’ exit from the EU. No matter what your position is on the referendum, business opportunities will reveal themselves whether the UK attains its single market status or not, that much is fact. The great news is that certain sectors weather lean times better than others, so there is still scope for positive developments in the new year, it’s just about knowing when to play your hand or mull things over.
Nick Atherton is MD of Morphose