5 Strategic Reasons Your Business is Worth More in Someone Else’s Hands
It can be a bitter pill to swallow for an entrepreneur who has worked hard to build a business they are rightly very proud of, but let’s be honest – if your business isn’t worth more in the hands of a new owner, why sell it? You will only achieve a premium price for your business if the new owner believes they can do more with it than you have achieved.
The sweetener for any owner looking to sell, of course, is that standard methods of valuation are soon overruled by a strong strategic motive for acquisition. Here are 5 recent examples of strategic motives for acquisition – do any of them sound like your business?
1. Filling in the gaps
The recent explosion in cook-at-home meal delivery services like Gusto and Hello Fresh, fuelled by the pandemic, has left traditional food companies with an obvious and gaping hole in their portfolios. This was clearly a strong motive for Nestlé who announced in November 2020 that they had acquired a 16% stake in Freshly, a US-based meal delivery business.
The deal values Freshly at $950m – just over 2.2x turnover. But this valuation was not simply about financials, in the words of Nestlé USA Chairman and CEO Steve Presley “adding them to the portfolio accelerates our ability to capitalize on the new realities in the U.S. food market and further positions Nestlé to win in the future.”
2. Moving with the times
The complex world of technology and computing doesn’t stand still, and no-one understands that better than chip-set manufacturer AMD having grown over the years to provide a credible and, arguably, better alternative to the market originator Intel.
They know they need to stay ahead of the game, a motive which has led them to acquire Xilinx – an innovative designer and manufacturer in the same space. A statement from the companies says the acquisition will allow them to “capitalize on opportunities spanning some of the industry’s most important growth segments, including data centres, gaming, PCs, communications, automotive, industrial, aerospace and defence.”
3. Brand power
One thing SMEs regularly underestimate is the value of their brand and reputation. You might not have the reach to be a global household name, but that doesn’t mean that companies won’t be interested in the meaning your name carries among your clients and in your local area.
EG Group (who also acquired Asda in October 2020) acquired fast-food chain LEON in April 2021 for £100m, despite being loss-making and having its growth plans seriously stunted by the pandemic. So why the valuation? Mohsin Issa and Zuber Issa of EG Group said the deal offered a “fantastic opportunity” to purchase a “brand we have long admired”.
4. Economics of scale
Amazon is everywhere and is one of those fortunate businesses to have been in the right place at the right time during this pandemic. But what can other businesses do when faced with a sprawling giant with the seemingly un-touchable might of a business like Amazon. One way is to acquire scale…
The acquisition of publisher, Simon & Schuster by Penguin Random House is an attempt to combat scale, with scale. The deal, expected to go through in mid-2021, will make Penguin Random House the biggest book publisher in the U.S., responsible for an estimated 1/3 of all books published in the territory. Few of us will ever be able to challenge this in terms of scale, but the principle applies even when scaled down to the SME level. Could someone gain significant benefits of scale from acquiring your business?
5. Upskilling
One of the limiting factors to growth commonly experienced by companies is a need to build experience, expertise, and skills into the business. This can be done through development of personnel and recruitment, but it is a slow process. Faster by a long way is to acquire a company that has already built the experience, expertise, and skills you need.
The acquisition of Waste Source by Reconomy in October 2020 was a classic example of this. Reconomy Chief Executive, Paul Cox said, “Waste Source will bring even more expertise, capability and experience into the group as part of that strategy, and we look forward to working with the team.”
If you think your business could be worth more in the hands of a strategic acquirer, or you want to explore your options, we would love to talk to you. As we said in a previous blog, who buys your business matters immensely, so it’s a process that must be skilfully driven. Get in touch with us to arrange a confidential, no obligation call.
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FAQs – Selling Your Company
How do I sell my business in the UK?
Selling a business in the UK typically involves preparing financial information, obtaining a valuation, identifying suitable buyers and negotiating the terms of a sale. Most owners work with an M&A adviser to manage the process confidentially, approach qualified buyers and maximise the value achieved.
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
What is my business worth?
A business is typically valued using a multiple of its profit, usually EBITDA or adjusted net profit. The multiple depends on factors such as growth potential, recurring revenue, customer diversification and management strength. Professional valuation provides a realistic price range and helps position the business effectively for buyers.
Determining your business’s value is more than just calculating a number it’s complex with key factors, that said the basic equation is actually quite simple. Read more…
How long does it take to sell a business?
Selling a business in the UK typically takes between six and nine months from preparation to completion. The timeline depends on business readiness, buyer demand and the complexity of due diligence. Early preparation and clear financial reporting can help shorten the process.
When is the best time to sell a business?
The best time to sell a business is when it is performing strongly, growth prospects are clear and you are not under pressure to sell.
Business owners often achieve the strongest outcomes when:
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Profits and revenue are growing
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Financial records are clear and well prepared
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There is visible future growth for buyers
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The owner has planned the sale 12–18 months in advance
Market conditions can also influence valuations. Strong buyer demand, sector growth and favourable economic conditions can increase acquisition activity, but a well-prepared business can attract interest in most markets.
Deal activity often increases during spring and autumn, although transactions complete throughout the year. In practice, preparation and business performance usually matter more than trying to perfectly time the market.
Ultimately, the best time to sell is when both the business and the owner are ready, with the company positioned to demonstrate strong value to potential buyers.
Do I need an adviser to sell my business?
Many business owners choose to work with an M&A adviser to manage the sale process. Advisers help value the business, approach qualified buyers confidentially and negotiate terms. This structured approach can increase the likelihood of achieving a higher value and a successful transaction.
How is confidentiality protected during a sale?
Confidentiality is protected through controlled information sharing, anonymous buyer approaches and strict non-disclosure agreements. Potential buyers receive limited information initially and must sign an NDA before any sensitive details are released. Business owners approve prospective buyers and maintain visibility over all documentation throughout the process.
How do I value my business before selling?
Valuing a business before selling usually involves analysing profitability, identifying valuation multiples and assessing key value drivers such as recurring revenue and customer concentration.
What’s the quickest way to sell a company?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
What’s the best way to sell a business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…