Written by Robert Johnson, Partner

 

For many managers, acquisition is a route to future business growth. Although an acquisition should help achieve growth, the question you should also ask yourself is “Will the acquisition add long-term value to my business?”. In this blog, I’ll look at some of the key areas to create value beyond an acquisition.

Strategic alignment

Any acquisition must stay true to your overarching business strategy. It needs to be part of a clear 3-5 year strategic vision of where you want to take the business. As the deal process progresses and you gather information, owners and advisors should step back and assess whether the deal is the right one and if it will indeed create value long term.

Managers and founders might see this as an output from the due diligence phase of a deal – whilst that’s true in part, at every stage you should be questioning whether the deal fits with the overall business and acquisition strategy. If it doesn’t, you shouldn’t be afraid to walk away from a deal if it isn’t right and won’t create the long-term value you are looking for.

When we build a pipeline of acquisition opportunities for clients, we constantly review the criteria to determine if the overarching strategy fits with the targets we are considering.

Due diligence

Thorough due diligence also lies at the heart of value creation. Due diligence should go beyond the financial aspects of a business and include all key value drivers. The information found during due diligence can then be considered in relation to future value creation.

Historically, acquirers would have a 100-day plan for the initial period following the acquisition. However, this has evolved and become a much more dynamic process often involving key actions in advance of the closing of a deal. Our advice to buyers early in the transaction process is to think about creating a day zero (deal closing) plan to ensure that integration and value creation are always front of mind.

Integration planning and execution

Integration planning should be undertaken throughout the transaction process. Businesses should build strong connections between the deal team and the integration team at the start of the acquisition process and maintain that regular one-team approach.

Integration planning and execution should cover every area of the business, whether it’s people, sales, operations, finance or technology. Only then will you get a truly holistic view and maximise the chance of success.

If a potential acquisition can’t be integrated effectively, you may query whether the deal should go ahead. That said there are strategic exceptions to every ‘rule’ and it is always worth bearing in mind that your own ability to integrate may be the constraining factor – in these situations making an acquisition and leaving the business as a standalone unit in your group, until integration can be achieved, may make commercial sense.

There is no doubt, that the time and investment that companies make in integration will affect their ability to create value from a deal.

The impact on exit

At the risk of stating the obvious, it is key to consider how all aspects of any acquisition affect your exit plans.

It may seem counterintuitive to start the transaction with a focus on your ultimate exit. But understanding your personal ‘end game,’ the timing of that and your personal needs at the point you exit can help provide clarity on value creation during the deal.

Summary

Businesses are improving the value created through mergers and acquisitions, but there remains much more that can be achieved if you keep value creation as a focus throughout the deal process. This focus can never begin too early.

The most successful acquirers ensure that they have a defined M&A strategy and that this sits at the heart of their business strategy. Due diligence, integration planning and considering the impact on your exit from the business can help you to focus and improve value creation beyond an acquisition.

Written by, Robert Johnson Partner

In our pre-Budget blog, we shared our thoughts, hoping that we wouldn’t see more bad news for business in the Spring Statement. Thankfully, there was little in this Budget that was too surprising, and it certainly looks like the Chancellor is saving the ‘goodies’ for next year before an election.

In this blog we give our view on some of the announcements and the outlook for the coming 12 months.

Business Investment

It was encouraging to see the Chancellor continue to promote business investment by announcing a replacement to the capital allowance super deduction that was set to end on 31st March.

The scheme provides 100% First Year Allowance (FYA) or “Full Expensing” of the cost of certain items of plant and machinery from profits before tax in the year of purchase. Currently, this is set to run from April 2023 to March 2026, with the suggestion it may become permanent.

For those business founders continuing to invest, grow and increase business value, these changes will certainly help their plans.

EMI Share Options

Simplifications to the process for granting tax-advantaged Enterprise Management Incentives (EMI) share options were also part of the Spring Budget Statement. This will help owners to retain and incentivise key management and employees and could benefit owners looking to sell or undertake a Management Buy Out in the future.

Pensions

There was one unexpected announcement; the plan to remove the Pensions Lifetime Allowance charge and raise the Pension Annual Allowance to £60,000 from April 2023. However, for many business founders, the value of their business remains the largest proportion of their retirement funding and this announcement is likely to have little overall impact in their retirement planning.

Summary

In our last blog, we hoped that there would be no more bad news for business founders, and we believe that that this Budget will indeed prove to have been largely neutral – quite a low bar!

The ‘perfect storm’ over the last few years of  a global pandemic, political uncertainty, government U-turns, rising interest rates and increasing costs have created a tough environment for many businesses. However, business founders remain resilient to tackle the challenges facing them.

We expect next year’s Budget to produce more headline grabbing announcements before a general election. A change of government at the general election may well see Labour reverse some Conservative policies and a debate around capital gain/wealth taxes seems likely if hugely unwelcome. For this reason, business owners should consider their growth and investment plans now, if they are looking to increase business value and plan their exit.

If you require advice on funding for investment, mergers and acquisitions, or business exit or sale, contact us.

 

Written by Robert Johnson, Partner

Rising interest rates on the back of burgeoning inflation, teetering on the edge of a recession and the
war in Ukraine have created a ‘perfect storm’ for UK business owners in the past 12 months. Now as
April looms and previously announced corporation tax increases come into effect, you could be right
in thinking as an entrepreneur that the UK Government is not exactly your friend.

With the 2023 Spring Budget on the horizon, is it too much to hope for that Jeremy Hunt may
announce something that promotes entrepreneurship, business investment and wealth generation?

Don’t hit businesses any harder

With a rise in Corporation Tax due, end of the super deduction and a tightening of R&D tax credits
we are all hoping that the Spring Budget doesn’t contain any more bad news for business founders.

A period of stability is essential

After the roller coaster that owners have experienced in the last few years, businesses need a period
of relative stability. Many are predicting a boring Budget but dullness that will be short lived with a
more headline grabbing Budget in 2024 ahead of a general election.

So, what about Capital Gains Tax ‘CGT’?

At the moment, CGT looks likely to remain unaffected, with no suggestion that this might be
increased in the Spring Budget. However, for business founders who are already considering their
exit, it is worth noting that CGT could be back in the firing line for an incoming Labour
administration.

The next election must be held no later than January 2025 and although Labour have suggested they
won’t fundamentally change the current Conservatives tax plans, CGT has historically been an area
that is seen as something of a soft target – just look at the restriction of entrepreneurs relief and
other changes.

Whilst we can all hope that a Labour government focused on economic growth, a la Blair 1997,
would surely not punish entrepreneurs by increasing CGT rates on business sales there are no
guarantees.

Summary

Our overarching message to Jeremy Hunt is one of ‘steady as she goes’ and focus on giving business
some stability. However, for business founders, a wary eye needs to be kept on the medium-term
tax outlook – that period of certainty may be short lived.

Written by Robert Johnson, Partner

Given the economic turmoil of the past few years, with a global pandemic, the war in Ukraine, inflation at a 30-year high, the energy crisis and the pound falling to a record low against the dollar, as a business owner, you would be forgiven for thinking that now may not be the time to look to raise finance for growth. However, uncertain times like these do also create opportunities.

While investors and lenders are unsurprisingly nervous about rising inflation, cost of living and energy price rises, if entrepreneurs build these events into their scenario planning, then funders remain open to sound, well presented propositions.

Despite the economic turmoil of the past few years, we have not seen any real slowdown of transactions being completed. Businesses are put up for sale for all sorts of reasons and often in tough economic times, many business founders consider their options and will decide to sell. We are still seeing plenty of backing for acquisition support from both private equity and debt funders to entrepreneurs who are prepared and present a compelling investment case.

Be clear about your strategy

Business owners need to be well prepared and positioned to secure the funding they need for their growth plans in any market environment, let alone one as turbulent as present. Having clarity around your M&A strategy is crucial to secure funding. Funders will need to clearly understand why they should support you, rather than other businesses and this requires a detailed business plan and funding model.

When preparing financial projections for any deal currently, you need to build in a high degree of sensitivities around rising costs and the economic uncertainty. Using scenario planning and asking yourself ‘What if…’ and building a range of outcomes into your plans will be critical to your credibility and ultimate success.

Look beyond traditional routes

UK banks have continued to reduce their exposure to SME lending over the last few years. For a smaller SME going out to raise pure debt on its own to fund a small acquisition is going to be relatively tough with the historic usual suspects. However, we are still seeing plenty of activity from the wide range of challenger banks and debt funds who remain hungry for new business.

Interest rate on the rise?

The world has been used to artificially low interest rates over the last decade and although rates are rising, we are not currently looking at levels anywhere near those of 30 years ago. If a deal wasn’t going to go ahead because of a one or two per cent interest rate rise, then the deal probably wasn’t suitable in the first place.

Specialist lenders will generally lend to creditworthy businesses despite tough economic conditions if the businesses have the right strategy and strong business plans in place.

Managing your working capital

More established businesses with good working capital controls that can navigate economic turbulence are always seen more favourably by lenders. Having a strong balance sheet; good information and a demonstrable record of working capital management will always send out positive messages to prospective funders.

Different outlook by sectors

For businesses that have significant energy costs, it is incredibly hard at the moment. These types of businesses only have clear visibility of costs until April, making it incredibly difficult to move forward with any long-term strategy. Industries that have direct exposure to consumers, with the cost-of-living crisis and rising inflation are also finding it difficult to plan for the longer term right now. In these more exposed sectors, the need for prudence and a range of scenarios in your proposition becomes even more relevant.

Sectors such as technology and healthcare that are perceived as being more resilient are undoubtably seen as more attractive to funders of all types. We continue to see deals in these sectors happening despite the economic turbulence.

Summary

There is no doubt, that uncertainty also creates opportunity and for the right types of businesses with a clear strategy, funders are still willing to support growth and well-planned strategic acquisitions.

Despite economic disruption, we are still seeing plenty of M&A activity and funding available in the market to the right types of businesses.

Our advice to entrepreneurs that are looking to grow is don’t delay your plans because of the current economic situation. If nothing else, the last few years have taught us, that if you take the approach of ‘wait and see what might happen’, then you will miss opportunities and something else (generally not for the better) may well have happened in the meantime!

How Springboard can help

To secure the right funding for your business growth, the advice is to work with external advisors like Springboard who have experience of devising and accessing the right funding solution for you.

By leveraging our extensive network of debt and equity providers, we provide support to refinance or raise additional working capital, development or replacement capital, or acquisition finance. We actively manage the process through to completion.

We work with our clients to precisely understand their funding requirement and will build a detailed business plan and funding model to drive the optimal funding structure.

If you want further help and advice to find the right funding solution for your business and achieve your objectives, please contact us.