Azets: 50% of business exits result of unexpected ‘tap on the shoulder’

Azets: 50% of business exits result of unexpected ‘tap on the shoulder’

Graham Cunning

Up to 50% of business exits occur due to an unexpected approach from potential buyers, however many business owners fail to maximise shareholder value as they are ill prepared for the ‘tap on a shoulder’ approach, according to research by Azets.

An unsolicited approach is when a buyer such as a large corporate, private equity house or competitor makes a direct approach to ask if the owners will sell. The unsolicited approach has become increasingly common since the Covid pandemic and reflects the strong cash reserves built up by corporate buyers who want to execute their Board approved growth plans and make strategic acquisitions.

Private Equity investors have raised billions in funding and are highly focussed on deploying it for acquisitions, driving sector consolidation, as part of their “buy & build” strategies.

“The SME sector, particularly in Scotland, is rife with innovative, ambitious and entrepreneurial companies, so successful businesses can easily land on the radar of acquisitive corporates, whether they are based here in the UK, in continental Europe, or further afield, without knowing,” said Graham Cunning, head of corporate finance at Azets in Scotland.

He added: “This is both an opportunity and a risk – an opportunity to realise great value for the shareholders, but only if their business is prepared and presentable, but a risk if an approach catches the business owners and management unaware, and results in value well below the business’ full potential.

“Unfortunately, 9 times out of 10 a company is simply not prepared for sale, is immediately on the backfoot and hence find it difficult to gain the upper hand in negotiations.”

Azets encourages business owners to plan for an exit many years in advance, regardless of whether that is via a trade sale, management buyout, or a sale into employee ownership.

“If business owners assume that their business is always for sale, they are more likely to prepare accordingly and will be better equipped to manage the unexpected call,” said Mr Cunning, who outlined four key benefits from taking a strategic approach to exit planning:

  • Shareholder value is maximised
  • Business continuity is more likely
  • Due diligence risk is reduced
  • Business performance more likely to improve

Graham Cunning said that making time to plan for a sale, regardless of whether one is intended in the short or medium term, is probably one of the most profitable management decisions shareholders and their boards can make.

He concluded: “Our research indicates that the majority of successful businesses leave exit planning to the last moment.

“We encourage business owners to add ‘exit value’ to board agendas to focus minds on getting exit ready, even if a planned sale is not imminent.”

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