Business expert: end of support schemes likely to fuel M&A
Tuesday, September 28, 2021
Print bosses have been urged to consider their options carefully with the end of the furlough scheme looming and government-backed loans requiring repayment.
Steve Phillips, director at consultancy firm The Business Board, said the pandemic had resulted in some company owners taking time out to reflect and consider their exit strategies.
While some print firms, such as those printing for the NHS, have been busy throughout the pandemic, Phillips said that the situation had resulted in “something of a lottery” in how firms had fared.
“If you decide to sell your business, it isn’t an overnight decision. So many people in print are lifelong printers, they know all the staff, if might be a family business, and they try and hang on there.
“What happens is they think ‘next year I’ll turn it around’ and then they diminish the value.”
He urged business owners to consider factors such as whether it would make sense to remodel their setups based on likely future sales.
“Dependant on your size, if you have a number of offerings, it is a good exercise to treat them as separate costs centres and revenue streams. Some ancillary services to your core business can be a loss-making burden,” he noted.
“Get finance in place for growth, if needed. The past 18 months may have been a considerable drain on reserves.”
His fellow director Nigel Elkes added: “It's very hard because the first thing front and foremost in your mind [as a business owner] is really the customers and the suppliers and trying to keep it all flowing and obviously paying the employees.”
“I don’t know what everyone’s outlook for sales will be Q4 this year and Q1 2022. It’s probably not going to be an easy transition or route back to normality. It’s going to be equally competitive, if not more competitive and it will accelerate people’s decisions.”
Phillips also said there was a strong appetite for M&A deals and bolt-on acquisitions, such as a business with a good order book, at present.
“We’ve got people with a war chest looking for acquisitions. There are options out there.”
He said that valuation wise, the most common form of valuation was a multiple of a three year average of EBITDA “and within the print sector it would generally be a multiple of between two-to-four dependant on client relationships and concentration, any USPs or IP; and balance sheet dependant, with potentially additional value taken from surplus assets”.
“In this uncertain world a buyer can offer certainty to business owners, we have assisted a number of transactions where sales have been down significantly affected by the pandemic.”
Phillips also urged print bosses to look closely at the small print involved with any engagement, such as with a general business broker.
“My advice would be to look at the fees involved, and look at the small print of the contract. I sold a business last year, they almost went with someone else until they realised that the broker wanted exclusivity on marketing their business for two years! We say 30 days, give us 30 days’ notice. The only caveat would be if we had made the introduction [of a future buyer] during the engagement period,” he explained.
Reading-based The Business Board focuses on working with privately-owned SMEs, typically with a turnover of between £1m-£10m.