Since trading restrictions around Covid-19 have been introduced, one question I often get asked is, are businesses selling at the moment?
The quick and simple answer is it depends. That is there are lots of factors at play as to what type of businesses are selling at the moment like which industry they operate, have they the ability to pivot, how likely their trade has and will continue to be affected by the restrictions.
Acquiring a business is fundamentally an investment, which carries a certain level of risk. If the purchasers feel the risk is too great for the business, price or terms will have to soften in order to make the deal a win-win scenario. There are a number of market factors that we will cover below that is having an effect on the business buying market at the moment.
Low Interest-Rates
The UK base rate is at a record low at just 0.1%, which makes lending money very cheap and affordable. Also, the government is dishing out bounce back loans and CBILS in order to keep businesses afloat, which in turn is making the financial markets even more competitive.
Government Grants
Back in Spring 2020 businesses with commercial properties were given either a £10,000 or £25,000 grant to assist them through the crisis. This grant obviously helped struggling business owners through the worse of the Spring lockdown, but some retailers weren’t as strongly impacted and didn’t have a requirement to utilise these funds, but still received them. We have seen existing business owners use these funds as a means of purchasing an additional business.
Bounce back Loans (BBL)
These are loans of up to £50,000 of which any business is eligible providing they can self-certify that they have been impacted by Covid-19 and can lend no more than 25% of their turnover. These loans can be used for investment purposes, and some have chosen to use the money to acquire an additional business. They are payment-free for the first 12 months, then only 2.5% per annum thereafter, making for really cheap finance over a 10-year period. There are many ways to finance a business acquisition that should be considered.
Furloughed Staff / Redundancies
There are still many employers utilising the government furlough scheme, which is artificially propping up businesses and the economy. I believe that once the veil of furlough is stripped away, the UK will see mass redundancies and unemployment levels will soar.
With fewer jobs on the horizon, we will naturally start to see hundreds of applications for low-level jobs, as people panic to gain an income to support their families, with little chance of success. Redundancies may come with a lump-sum of cash, of which we will see (and already have seen) people turn to starting or acquiring businesses, to provide them with an income. The lump-sum could be used as a deposit, combined with low-interest lending to purchase an existing business.
Short vs Medium-term Outlook
Depending on how acquirers view the market over the short to medium term, depends on if they see opportunities to pick up businesses with either softened prices or terms. At the moment the hospitality sector is naturally suffering, and short-term acquirers could think the risks are too high, whereas people who take a longer-term approach may be able to pick up a bargain and ride through until restrictions start to ease.
Property and Recession
It’s almost inevitable that the UK will slip into recession as a result of the terrible trading year. The property market is currently being artificially inflated as a result of the stamp-duty relief and pent-up demand from the lockdown. UK property prices have been rising at quite a sharp rate over Summer and Autumn, however, I feel as though this isn’t set to last.
Businesses have been struggling, and naturally will start falling behind on their rent payments, and ultimately have an effect on commercial property prices. If you have a commercial property that you are considering selling, to gain the most value, a sooner sale might be worth considering.
Depending on your sector and outlook for exiting your business, now might be the best time to sell up. If you want to have a free market appraisal, EM&F can certainly provide an insight into how buoyant your market is for acquisitions at the moment, along with realistically how much you could sell your business for.