A third of SME owners planning to retire or sell within five years
32% of SME owners are planning to retire, sell or pass on their businesses within the next five years, but many do not appear to have clear plans for managing business succession, reveals research by Moore Stephens, the Top Ten accountancy firm.
Moore Stephens said that the percentage of business owners hoping to exit in the next few years may be exceptionally large as it includes those owners who could not sell their companies during the recession and subsequent years of slow economic growth.
Moore Stephens said that with such a large number of smaller businesses potentially up for sale in the next five years, only those who have properly prepared for the process are likely to attract purchasers willing to pay generous multiples.
Moores Stephens’ study found that, when asked which options they would consider in terms of handing their business over, around half of respondents (48%) were uncertain over what kind of purchaser could be targeted.
However, Moore Stephens found that even among those business owners with succession plans in place, the majority seem to sharply limit their options for a successful exit.
No one succession planning option was particularly favoured amongst SME owners. Selling out to a UK-based rival was the most popular type of acquirer owners would consider, but still 44% of business owners said they would never consider selling to UK rivals.
Among other common methods of exiting a business, a management buyout (58% would not consider), a sale to private equity (68% said they would not consider ) and a sale to a family member (72% would not consider) were all regarded as undesirable by a large majority.
Moore Stephens said that owners of small and medium businesses should investigate all the options open to them when forming an exit strategy, regardless of any prejudice they might hold against them.
Debbie Clarke, head of M&A at Moore Stephens, said: “Our view is that while a lot of SME owners have the goal of exiting in the next five years, not enough have yet done their due diligence on their broad options.
“A large proportion of SME owners have a fairly short exit horizon in mind, with a substantial majority looking to retire, sell out or pass their businesses on to others in a just a few years. That would suggest a huge transition in ownership of owner managed businesses.
“Business owners looking to exit in the medium term owe it to themselves to fully understand all the options in front of them when planning their exits. While options like a sale to private equity might suffer from a touch of prejudice in the minds of some, it can be the best way to realise a successful exit in some cases.
“It’s also interesting to note that the tradition of the family business seems not to be as strong as it was, and that’s probably driven by the desire to get the best price possible.
“While selling to a competitor is the most popular option, this is highly dependent on market conditions – during a downturn, few are likely to be looking for acquisitions. Being flexible might well be the best way to secure the most profitable exit.”