GROWING AND SELLING YOUR BUSINESS IN THE THAMES VALLEY

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GROWING AND SELLING YOUR BUSINESS IN THE THAMES VALLEY

www.bcms.co.uk

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WELCOME

WELCOME TO THIS BRIEF GUIDE TO GROWING AND SELLING A BUSINESS IN THE THAMES VALLEY.

The Thames Valley is home to fast-growing firms across many key industries, from food production and data centre management to advanced engineering companies and recruitment consultancies.

Many of these have successfully attracted external funding to pursue ambitious growth strategies, while others have been acquired by homegrown or overseas corporations, and our contributors have sought to identify some common themes to understand the challenges faced by today’s entrepreneurs.

We are embarking on a series of conversations at events with local business owners to share more insights on what’s driving entrepreneurs to exit and sell their venture, and investigating the SME funding arena across the Thames Valley.

If you are a local business owner and keen to join in, the bcms website offers a range of activities – events, webinars, downloads and more – to help you improve your understanding of why entrepreneurs do or don’t sell up, what they do next, and when is the best time to sell.

Happy reading, and we look forward to hearing from you.

Liz Jackson MBEMarketing Director, BCMS

THE THAMES VALLEY HAS EMERGED OVER 40 YEARS TO BECOME THE UK’S SECOND MOST PRODUCTIVE SUB-REGION AFTER CENTRAL LONDON. KNOWN AS THE ‘SILICON VALLEY OF EUROPE’, THE AREA IS REGARDED AS THE HOME OF SOME OF THE WORLD’S MOST SUCCESSFUL BRANDS, INNOVATIVE SMALL BUSINESSES, AND NEW GENERATION ENTREPRENEURS.

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GROWING AND SELLING YOUR BUSINESS IN THE THAMES VALLEY

Of course, this is no economic miracle, but the result of several factors combining to create dynamic business conditions. Key reasons include:

→ HEATHROW – the Thames Valley is peppered with global or European head offices of major multinationals, with the vast majority citing proximity to a major airport as a deciding factor for being here

→ CLUSTERS – several emerging industry groups – from biotech to video games – have grown up around Oxford and Reading universities. Elsewhere, industry hubs have formed around major customers in fields such as telecoms (Newbury), motorsports (Silverstone), and data centres (Slough)

→ INFRASTRUCTURE – the arrival of local motorways in the early 1970s and early adoption of cabling infrastructure a decade later helped local firms in traditional and emerging sectors to connect to the rest of the UK

However, that same high productivity and rapid economic growth brings a set of unusual challenges for local business owners, including:

→ WORKFORCE SKILLS – in a region with near-full employment, recruiting good quality employees is a perennial problem, especially for smaller businesses unable to match the pay and perks of major multinationals

→ COMPETITIVE INTENSITY – business survival rates are lower across the Thames Valley than nationally, as the buoyant economy intensifies competition levels

→ ACCESS TO FINANCE – although the region scores well in terms of overall business investment levels, access to growth funding remains difficult, especially for low-asset businesses in unfashionable parts of the economy.

DOING BUSINESS IN THE THAMES VALLEY

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INVESTMENT SCENE Regional business funding is a labyrinth of grants and loans, yet access to finance remains one of the top three challenges for small business owners.

The bulk of business lending comes via traditional finance from the private sector – in practice high street and investment banks. Sources of alternative finance such as venture capital, private equity and crowd funding have grown in popularity since the last recession.

For Thames Valley SMEs looking to borrow to grow, there are a vast array of routes to research, including:

→ BANK LOAN – the most common commercial loans are for up to £250,000 paid back over up to 15 years, available from high street banks

→ BUSINESS ANGELS – the Thames Valley Investor Network offers loans of £150k-£750k sourced from individual entrepreneurs and mentors. Other angel networks operate nationally

→ VENTURE CAPITAL – the UK venture capital industry is the most competitive in Europe. But although tech start-ups find it relatively easy to attract early stage backing, this route is usually more difficult for businesses in traditional industries, unless they can demonstrate outstanding growth rates

→ PRIVATE EQUITY – UK and overseas private equity providers have stepped up their investment in the Thames Valley in the last year, moving beyond their traditional core of technology and consumer investments to take stakes in less fashionable sectors such as construction and manufacturing

→ CROWDFUNDING – although a relatively new form of lending, trends show that crowdfunding investment levels overtook venture capital last year. Sums of up to £250,000 are available with this route, with widely varying timescales, terms and conditions

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GROWING AND SELLING YOUR BUSINESS IN THE THAMES VALLEY

EXIT SCENE Choosing the right exit strategy for business owners and shareholders takes careful planning and good advice. The main business exit options are:

→ IPO – a portion of the company is floated on the stock market, with public share trading. There are no minimum size requirements, and local companies with as little as £20m turnover are trading successfully and growing fast

→ FULL COMPANY SALE – a trade buyer acquires all the assets and shares of the target business, often with some payment deferred subject to future performance

→ PARTIAL SALE – an investor or another company buys a stake, either indefinitely or for a fixed period, allowing for board-level exit while providing stability to the business

→ MANAGEMENT BUYOUT – usually financed through a combination of private equity and debt finance, the business is recapitalised and sold to the next generation of incoming management

→ MANAGEMENT BUY-IN – when a management team from outside the business raises the finance, buys a controlling stake, and runs the company. In some cases, a combination of existing and incoming managers join forces, and this is known as a Buy-in management buyout (BIMBO)

→ WINDING DOWN – businesses in distress or with shareholders in need of an urgent exit tend to have fewer options, and winding down the business, selling off stock and assets is a way out, albeit without recognising the true value of the company

With more than 300 M&A transactions every year, the Thames Valley is one of the UK’s most active dealmaking enviroments. This is partly driven by interest from London and further afield drawn to the Thames Valley’s growth industries, and supported by the strong dealmaking community.

WITH SO MANY OPTIONS AND IN AN ERA OF INCREASING UNSOLICITED APPROACHES, IT COULD BE YOUR TURN NEXT.

DOING BUSINESS IN THE THAMES VALLEY

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CASE STUDY

THE RIGHT MOVE FOR A GROWING BUSINESS

Sam Pemberton sold his broadcast captioning software company Softel to Miranda Technologies, a division of US giant Belden Inc. From its base in Pangbourne, Berks, Softel served a prestigious customer base list that read like a “who’s who” of the media sector, including ABC/Disney, the BBC, Deluxe, ESPN, Sky, Technicolor, Turner, and more.

His rationale for selling was clear: to give the company and its staff the best chance of future growth…

HOW DID YOU FIND THE SALE PROCESS?“The sales process was massively challenging but also rewarding. We worked extremely hard as we wanted to make sure that if the deal didn’t happen, we had a really strong company to fall back on. Our profit quadrupled, our sales went up and we had a fantastic year right through the process.

WHAT KIND OF DEAL WERE YOU HOPING FOR?I was enormously satisfied with the sale price and terms. But we also wanted to be proud of the deal that we did. We wanted as directors to walk away with our heads held high, knowing that we had left the company going from strength to strength, with a platform to go to the next level, being part of a much bigger organisation - and all that this could bring.

It was critically important that whichever company bought us shared our values, respected our staff and understood our rationale for why we were investing in certain things – our basic strategy. In Belden, we found a company that utterly without question understood all of that. [Since the sale] They have invested into products and they carried out launches of products that we had planned to do. That was important for us…”

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GROWING AND SELLING YOUR BUSINESS IN THE THAMES VALLEY

BCMS EXECUTIVE DIRECTOR, JONATHAN DUNN, DISCUSSES SOME OF THE COMMON PITFALLS TO CONSIDER WHEN SELLING OR EXITING A COMPANY

WHY ARE THERE SO MANY ACQUIRERS APPROACHING THAMES VALLEY COMPANIES?Many acquisitive firms are proactive and will approach target businesses directly, rather than wait for them to come to market. While this may be flattering, they are looking to acquire a business without too much fuss, and preferably without competing bids. The big lesson here is not to go into exclusive negotiations without having an experienced M&A advisor in your corner.

IS IT A LEVEL PLAYING FIELD FOR BUYER AND SELLER? Typically around 80% of our clients have never sold a business before, whereas the majority of acquirers have bought several, and know what they are getting into. Our job is to help our clients maximise value when selling, as opposed to minimising expenditure when buying.

SHOULD I SELL TO A DIRECT COMPETITOR? Direct competitors make up one of the smallest categories of successful buyers in our experience. We’ve found that complementary acquirers see a lot more value in our clients, and therefore are willing to pay more.

IS IT WORTH USING ADVISORS IF I WANT TO DO A MANAGEMENT BUYOUT? Yes. Any manager worth their salt will understand that, in an MBO as much as anything else, the value of the deal and potential risks must be evaluated. You may get on very well with the management team, but if there are external funders in the mix, you need to know who they are, what they want, and to ensure they can afford the deal on the table.

HOW DO ADVISORS ADD VALUE FOR THE VENDOR? If someone knocked on your house door and said they wanted to buy your home and named their price, the first thing you would do is acknowledge the interest and shut the door to think about it. You’d want to talk to other people who have sold, discuss with estate agents, and start working on getting the property into the best shape to sell.

It’s the same in business. The true value is about the company’s future potential, understanding the acquirer’s motivation, and meshing the two together.

THAMES VALLEY DEALMAKING CONSIDERATIONS

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GROWING AND SELLING YOUR BUSINESS IN THE THAMES VALLEY

BEWARE THE DUE DILIGENCE PROCESS – PREPARING YOUR BUSINESS FOR SALE

AFTER YEARS SPENT TIRELESSLY DEVELOPING YOUR BUSINESS, THE PROSPECT OF SALE CAN BE DAUNTING. THE SALE MIGHT BE FOR MANY REASONS – YOU MAY BE RETIRING, OR SIMPLY WANT A CHANGE OF LIFESTYLE. IN ANY EVENT, YOU SHOULD PREPARE BOTH YOUR BUSINESS, AND YOURSELF FOR THE SALE PROCESS. REBECCA LEASK, PARTNER AT HARRISON CLARK RICKERBYS, EXPLAINS.We always say that when it comes to selling your business, the three “P”s are essential – Planning, Preparation, and Patience. This is particularly so when it comes to the due diligence exercise which any potential buyer will undertake before purchase. You will need to work overtime to provide the buyer with as much information about the business as possible, as well as ensuring that you keep the company as profitable as possible to maximise sale value. In our experience, there are a number of issues that consistently arise during due diligence that can slow the sale process, or even reduce sale value.

With this in mind, below are our top tips for preparing your business for the due diligence exercise, and ultimately for sale.

1. BE PREPARED TO BE OPEN, BUT ENSURE CONFIDENTIALITYThe potential buyer will want to know of any “skeletons” they need to be aware of. It is in your interests to provide them with as much information as you can. Whilst you may feel understandably reticent to reveal issues you feel will hinder the prospect or value of the sale, the buyer may be able to bring proceedings against you post-completion when these issues come to light, if you have not already disclosed them.

In any event, any potential buyer will enter into a non-disclosure agreement to ensure they keep any information passed to them confidential. Whilst they ultimately may decide against buying the business based on information that you provide to them, they should not then have the freedom to disclose that information to anyone, or use it in any other way.

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2. ARE YOUR CONTRACTS IN ORDER?The buyer will look for certainty in the business’ commercial relationships with key customers and suppliers. The best way to achieve this is through a written contract setting out the terms on which the businesses deal with each other. Practically speaking of course, this isn’t always how businesses interact day-to-day. Making moves to formalise such arrangements can set hairs running. Nevertheless, it is worth identifying your key customers and suppliers, and if you do not have written agreements, considering whether it would be feasible to put them in place without advertising the sale.

3. ARE YOU COMPLIANT?Whilst it is not always top of every business’ agenda, regulatory compliance is important, and any breach can scupper a sale. You should ensure that you are aware of all of the licences and authorisations your business requires to operate, and whether you have them in place. For example, do you need to be registered with the Financial Conduct Authority for carrying out regulated activities if you are selling certain financial products? Do you have operational equipment that requires servicing, and are all services up to date? You should be making these internal enquiries early so that you have enough time to rectify any non-compliance.

These are just some of the issues you need to be considering. In our experience, sellers are often surprised by how gruelling the sale process can be – your workload and hours can often double during this time. However, providing you have chosen the right advisors, they should be there to guide you through the process as seamlessly as possible, and ensure that you are duly rewarded upon completion.

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GROWING AND SELLING YOUR BUSINESS IN THE THAMES VALLEY

LOCAL DEALS OF INTEREST THAMES VALLEY

Milton Keynes

Oxford

Reading

London

Swindon

BCMS HAS SOLD MORE THAN 60 BUSINESSES IN THE THAMES VALLEY SO FAR. FOR A DEEPER UNDERSTANDING OF LOCAL DEALMAKING, CASE STUDIES, WEBINARS, EVENTS AND MORE, VISIT WWW.BCMS.CO.UK

PHARMAWainwright Associates/Yes Pharmaceuticals (Slough)

SAASShow Data Systems/Jonas Software (Wallingford)

BROADCAST EQUIPMENTSoftel/Belden (Reading)

MEDICAL COMMSAlpha Plus/Fishawack (High Wycombe)

FOOD & DRINKClearwater Hampers/MBO (Abingdon)

CYBERSECURITYData Duplication/Avatu (Aylesbury)

RAIL ENGINEERINGTickford Powertrain/Intertek (Milton Keynes)

DEFENCEVector/Cobham (Oxford)

PLASTIC MANUFACTURINGCox Wokingham Plastics/Alycdion Capital (Wokingham)Deal hotspots in the Thames Valley

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CASE STUDY“I WANTED TO SELL, I JUST DIDN’T KNOW HOW TO GO ABOUT IT”

In 1993, Tom Woodard set up Show Data Systems in Oxfordshire offering event registration software for the UK’s trade show circuit. In 2007, Tom took a 75% stake in event ticketing specialist Interchange Communications, and by the time he decided to sell, Tom was employing 18 people and 70 casual workers to manage more than 230 shows a year. BCMS advised Tom on the sale of both businesses to Canadian technology group Jonas Software for an undisclosed sum.

WHAT LED YOU TO SET UP SHOW DATA SYSTEMS? “From a young age, I knew I wanted to work for myself, but I had no idea how to go about it. After doing a science degree I spent several years travelling before joining my father’s business. His business was selling ID products for the event industry, and I developed a computerised registration system. I was perhaps more ambitious to grow than he wanted, so we agreed that I would run my own business. He gave me my first customer, and the rest is history.

WHY DID YOU WANT TO SELL? “I’d had enough. I was running my own business and had acquired another one en route (Interchange). I was ready for a change. Events are very tiring, and I didn’t have the same level of energy I had 20 plus years ago. I was thinking of an exit five years before but the business wasn’t big enough. Then, I was invited to a BCMS seminar. I knew I wanted to sell, I just didn’t know how to go about it.

WHAT WOULD YOU SAY WERE THE CHALLENGES OF RUNNING A BUSINESS? “Show Data Systems was running 230 events a year, and while they invariably went well, I was always conscious that I needed to be on hand. A lot of customers know me personally and wanted to deal with me, so I took steps to resolve that by hiring account managers.

HOW DID YOU GET ON WITH THE BUYER? “Jonas Software was a straightforward company to deal with. Its business model is to acquire software houses with recurring revenues. As we had a slightly different business model the due diligence took a bit longer than usual.

They had a number of senior people looking for career development. One of them was put forward as the new Managing Director and we had a month-long handover before I left the business.”

WHAT DOES THE FUTURE HOLD FOR YOU NOW?“I am particularly interested in peer-to-peer lending at the moment, and I’ve invested in a few small projects. I’m only 50, so I am thinking about building up a new business again. But for now, I’m enjoying my freedom.”

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GROWING AND SELLING YOUR BUSINESS IN THE THAMES VALLEY

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46%

TechnologyBusiness svsFoodTransportHealthcare

ConstructionManufacturingConsumerAutomotiveOther

Business survival:

Top sectorsTechnology/telecomsLife sciences127,000 active businesses

500 software companies 400 telecoms companies 150 medical/pharma companies

(*GVA) Regional economy worth

Thames Valley by numbers

Thames Valley workforce

first 5 years Thames Valley

£ 74bn*

3.1m

THAMES VALLEY IN NUMBERS

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Business

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Food

Transp

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Construct

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Man

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Consum

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2021

Thames Valley 250 by industry (%)

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This publication has been produced to help business owners in the Thames Valley to better understand the drivers of local dealmaking activity, and to protect the value of a company during a change of ownership.

CONTRIBUTORS

BCMS - is an international M&A advisor specialising in business sales and corporate divestments worth £1m-£500m. Founded in the UK in 1989, the firm has 22 offices worldwide, including New York, Hong Kong and Johannesburg, and employs more than 260 corporate finance professionals. BCMS has completed more than 500 transactions in the last decade alone, and is accredited by the Financial Conduct Authority. www.bcms.co.uk

Harrison Clark Rickerbys – is a leading UK law firm with 400 staff and seven offices including Reading, Birmingham and Cheltenham. Formed from the merger of Harrison Clark and Rickerbys, both are accredited by Lexcel, the Law Society’s rating for excellence in client care and practice management. www.hcrlaw.com

The Business Magazine – the leading voice of business in the south, the Business Magazine was established by Elcot Publications in 1993 to fill a gap in the Thames Valley market for a quality publication to accurately report the business events in the region, profile leading business people, and act as a communications platform for regional businesses. www.businessmag.co.uk

© BCMS 2017

Reproduction in whole or part without written permission is strictly prohibited. Whilst every care has been taken during the preparation of this publication, BCMS cannot be held responsible for the accuracy of the

information herein or for any consequence arising from it. Opinions expressed do not necessarily reflect BCMS policies. The information published here is intended to be for general information only and should

not be used as the basis for divestment decisions. BCMS, its staff and contributors do not accept any liability for any loss suffered by readers as a result of decisions made purely on the basis of the contents of this

publication. Professional advice should be taken in relation to all divestment decisions. BCMS is a trading style of BCMS Corporate Limited

BCMS Corporate Ltd is authorised and regulated by the Financial Conduct Authority, FRN 741716

Publication Date: March 2017

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