Adam Zoldan When is the right time to push the button? Timing is everything, and the most common question we are asked is around when is the perfect time to sell your business, raise funds or seek investment. The right time is subject to a wide range of factors, the vast majority of which are completely outside management and shareholders control As advisers, it is Macro factors that probably have the biggest impact on our business. Examples include the significant rise in interest rates which reduced the number of buyers willing to make acquisitions, large capital investments from end-users were delayed which impacted growth for channel players across the spectrum. and for those that remained in the market, the higher cost of capital was reflected in valuations and resulted in an overall fall in deal volumes. This continued until there was market confidence that rates had peaked and this stability has seen deal volumes grow again Tax changes behaviour, and we recently experienced this following the budget which saw an increase in the rate of Capital Gains Tax. This came into force on 1 November 2024 and during the Q3 2024, deal volumes jumped by a whopping 40% as shareholders looked to lock-in a lower tax rate on the sale of their assets. Interestingly, during this time most of the professional services industry involved in transactions – including lawyers, due diligence advisers and tax advisers was running at full capacity. As a result this was not a great time to start a transaction process as Buyers and Investors would not have had the resources at hand to execute a deal. Despite these external factors There are also a number of factors well within the control of management and shareholders that have a huge impact on timing a deal. The most important factor is your own ambition and aspiration for your business – most commonly knowing the value that you want to achieve. The value will typically be calculated by your profit x a multiple The 2 biggest factors that will drive this value are: Size – As company size increases, so does the valuation multiple and being able to demonstrate maintainable organic growth. A key step in timing should be being aware of the approximate size the business will have to be in order to achieve your ambitions. Organic Growth – Growth is a reflection of your company strategy, people, product set and your market sector and is a key factor when any buyer or investor is considering a transaction. When growth remains strong, there is a strong incentive to keep on going, but once a company heads over the peak and particularly if growth slows to zero (or negative) this will have a negative impact on value. The art of the deal is to identify the timing where shareholders feel confident of the sale and achieving their value whilst the buyer or investor feel confident that they can continue the growth journey. Some of the best deals we have completed have come out of the blue, where Investors are looking to get into a particular sector or a buyer needs to fill a particular hole or add a particular expertise. Quite often they will start calling companies they have identified themselves as ideal targets. For many (including Knight) the perfect time for a transaction was actually the perfect time for somebody else. These deals tend to result in premium valuations and a good prospects for management and staff. The key point here is to be ready. If you want to exit the business, start making yourself less valuable and if you want to put your company on a growth footing for investment, invest in people and systems, particularly automation. Above all, if you want your business to get through the transaction process then ensure that you are able to provide high quality consistent management information and understand what will be expected during the transaction and due diligence process. We would be happy to help here! www.knightcf.com BUSINESS BRIEFING PRINTITRESELLER.UK 21 Photo: pixabay.com/aitoff
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