Businesses must think carefully about pre-Budget exits

The stakes of waiting too long to sell can be high, but exiting without conducting due diligence often brings greater risk. Now’s the time for businesses to pause and assess all options to ensure the best outcome is secured.

A snapshot of confidence across the UK  

Whilst the capital’s post-pandemic recovery has been somewhat faster than the rest of the UK, business and investor confidence is picking up pace. For example, in Birmingham and the Midlands, investment opportunities are growing steadily and green shoots are increasingly evident. Last year, foreign direct investment (FDI) projects in the West Midlands were up 72 per cent in 2022 – the highest number for the region in the past decade. Business confidence is also up with more than half of surveyed firms in Greater Birmingham expecting an increase in profitability in the next 12 months.

This confidence, coupled with the anticipated changes to CGT, is unlocking a substantial pipeline of M&A activity and other business transactions. For businesses looking to exit, there is now an increased sense of urgency to get the ball rolling even though the timing of an increase to CGT rates cannot be confirmed.

Businesses looking to exit must align their ducks

Opting to sell up quickly to avoid incurring a higher CGT liability is risky business. Coming to market without a comprehensive exit strategy only increases the chance of transactions becoming more arduous and complex to carry out. For example, considering how the business will run post-transaction and outlining the duties of existing staff early on is essential for avoiding late-stage discussions that could undermine the deal-making process. With so much opportunity at stake across sectors (in the Midlands, this includes everything from dentistry to funeral services) it’s crucial for all businesses to prioritise due diligence before making snap decisions.

For those looking to exit, pre-transaction planning is a must. Deals should be structured to support integration and make the transition period as smooth as possible. Buyer confidence is buoyed by trust so the more transparent and prepared the seller is, the better. Whilst it’s tempting to accept an offer early, leaping into action before properly assessing the latest management accounts and establishing a succession plan can be costly.

Due diligence should also be exercised by buyers. The influx of businesses coming to market means there could be rich pickings but assessing a company’s financial trends, its growth projections and how it will be run post-transaction should not be rushed. Ideally, integration planning must also be undertaken well before the deal completion to harmonise all areas of the business. Where a business is to be absorbed into a buyer’s group, the process of integration and its potential impact on the wider business should be carefully considered too.

Key takeaways

Whilst now might seem an opportune moment for businesses to sell up, all options must be weighed up to determine the best path forward. Employee ownership for one could be a viable alternative and has become more popular among traditional manufacturing and construction companies looking to change their structure.

To ensure your business puts its best foot forward, here is a summary of key actions to consider:

• Assess the benefits of exiting now. How might this impact the business pre- and post-transaction?
• For those selling, ensure a comprehensive pre-transaction plan and a succession plan are in place.
• For those buying, carefully assess a business’ numbers and post-transaction plan before committing to investment.
• Ensure integration planning starts early. Consider how the business will run smoothly post-transaction.  

For more information, please contact Laura Jordan.

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