I am sure you all remember the financial crisis of 2008 that became known as the ‘Credit Crunch’. Like the past year, it was a tough time for UK SMEs, and many didn’t come out the other side. Companies were still being bought and sold, but it was widely acknowledged to be a challenging time to sell your business. One school of thought, which I have heard a number of times recently, is that 2021 is also a bad time to sell your business. But is 2021 like 2008, and a bad time to sell?
To answer this question, we need to look at some of the root causes and knock-on effects of both situations. But before we do, a word about the polarisation of industries. There are some for whom the last 12 months have been particularly devastating – the most obvious examples being those in hospitality, travel, and high-street retail. For those companies who have been unable to adapt or diversify, 2021 is not a good time to sell. For the rest of the market, however, there has been a mixture of fortunes – from those who have adapted to new ways of working and managed to maintain performance, to those who have found their services in higher demand and have thrived.
One of the major things about the ‘Credit Crunch’ was, unsurprisingly, its impact on the availability of credit… In the fallout from the 2008 crisis the banks simply stopped lending, and those that continued were significantly more cautious about why, when, who and how much. 2021 is not the same. Banks remain keen to lend money and interest rates are extremely low meaning there is plenty of cheap money available. Now, while you are unlikely to receive the best offers from companies that must borrow heavily to make the acquisition, the availability of credit to fund business growth and post-acquisition integration is a key driver of M&A activity.
Another key difference between 2008 and 2021 is the polarisation of markets and future optimism. The crisis in 2008 was relatively indiscriminate, affecting all businesses and making the future hard to predict. On the other hand, the financial hardships brought on by the pandemic have been much more focused on certain industries, with growth and recovery far easier to forecast. As an upshot of this, acquirers have been far more willing to view any negative impact of the pandemic as a temporary blip and not having a long-lasting detrimental effect on the underlying performance of the business.
Of course, the 2021 landscape is not just about Covid-19, the UK has also left the European Union which many predicted to be a disaster for inward investment. Whatever your political leanings, however, the statistics have simply not borne this out. In 2020 two thirds of deals in Europe were UK deals and speaking from our own experience, 70% of acquirers were from the US, Europe or the Far East. As well as the strength of UK business, the comparative weakness of Sterling on the international markets makes investment in the UK a very attractive proposition.
So, is 2021 like 2008, and a bad time to sell? No, 2021 is a very different landscape to 2008 and for most businesses it is a perfectly good time to sell.
Entrepreneurs Hub have produced a white paper looking at the 2021 M&A landscape in more detail – the full report can be accessed here.