Lead Forensics
Prettys Solicitors Ipswich


Corporate transactions outlook

The commercial and financial effects of the Covid-19 lockdown on many owner managed businesses have been significant and unprecedented, and have inevitably switched the focus of many businesses from expansion or a sale of the business to survival. This has led to many business owners believing that for the time being, funding will be hard to obtain outside the Covid loan schemes and that there will not be any prospect of a sale of the business for the foreseeable future. Whilst this is an accurate reflection of many aspects of the current situation, there are well funded investors who regard the current circumstances as creating significant opportunities to invest in or to acquire companies. To help SME owners who would be interested in exploring this avenue, this note looks at why there are investors in the market place and what they’re looking for.

Different investors will have different priorities and approaches, but their thinking will generally include the following factors

  1. Investment funds are set up to invest, so a lack of activity is economically damaging to them.
  2. Wealthy private investors are getting low returns on their money, with interest rates at a low and some volatility around capital and commodity markets
  3. The current circumstances offer both threat and opportunity to SME’s. A number of businesses will be slow to recover or may be forced to cease trading which will reduce competition and create growth opportunities for dynamic and well run companies with good funding lines
  4. Valuations are likely to be lower than before the lockdown to reflect the downturn in business activity and future risk and uncertainty
  5. SME’s may find difficulty in accessing loan funding other than Covid emergency loans, or if they can find loan funding, accessing it on reasonable commercial terms. This is likely to result in more SME owners being willing to issue shares in exchange for funding;
  6. MBO teams may also be finding debt funding harder to come by which opens up the field for equity investors
  7. For SME owners who were looking to retire, the current situation may persuade them that it is better to sell and retire now rather than struggle with the effects and risks posed by lockdown to try to achieve a higher price later on; and
  8. Some SME’s may be forced towards a sale by ongoing cashflow problems which will mean a low purchase price for an investor with the working capital available to support the business through the remainder of the lockdown.

So the message for SME owners who are looking for investment or sale is that there may well be opportunities in the weeks and months to come. The appetite of investors for risk has its limits, so not all businesses will be attractive but for those with one or more of a good and deliverable business model, capable management and a place in a market sector where competition will be reduced by the business failure of others within the sector, there are investors who will be happy to talk to them.

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