Brexit: Should you sell up now?
Against all odds, the Leave campaign won. The PM resigned, HM's Opposition is in disarray. The FTSE 100 dropped and picked right back up again to end the week higher than it started. The pound crashed through the floor to a 30 year low against the USD and bounced a bit (but didn't bounce enough for us to regain our place as fifth largest economy in the world which we lost to France overnight).
In that backdrop is it a good time to sell your business? Numerous articles have emerged recently from business brokers arguing that the iron is hot and now is a good time to retire. I'm not so sure.
In favour of selling your business now
In favour of selling is, of course, the value of the pound. A low pound makes our exports cheaper and our imports more expensive; it also has the effect of attracting capital as UK assets are a better deal now for foreign investors paying in euros or dollars.
Will the pound stay low? The Bank of England could raise interest rates to shore Sterling, but in these uncertain times that's highly unlikely to happen. Irrespective of possible interest rate rises, the cheap pound probably won't last forever. The current bear sentiment is the market's knee jerk reaction to getting the referendum result wrong. When the markets realise that very little has changed in the short term - the UK economy is sound, no exit is going to happen in the immediate future etc., - there will some short sellers cashing in and closing their positions to drive the pound back up again.
So should you sell while the pound is low?
The argument is that as the pound is cheap it makes sense to go to market now. I'm not so sure. Bear in mind that as someone who advises UK business owners on the sale of their businesses, I have a vested interest to say exactly the opposite.
Why not now?
It takes a while to prepare a business for sale, and without careful preparation you're going to be severely disadvantaged both on the number of buyers you attract and the price they are willing to pay. When you do go to market it can take anywhere from a couple of months to a couple of years to find a buyer and close a deal.
The entire process of preparing a business for sale, listing it, finding a buyer and closing the deal takes, on average, well over a year. There's no guarantee that the pound will continue to be the cheap deal it is now and you cannot rely on this to give you a price advantage.
Caveat: If your primary business involves exporting to non-EU countries and you are likely to see an immediate and substantial gain from where Sterling is now ... it may be worth getting your skates on and hiring a good exit planner / business broker / M&A advisor. If your broker can find you an investor willing to bet on the pound staying low and on your business continuing to enjoy this extraordinary competitive advantage, it'll do wonders for the valuation and the price you achieve. This window of opportunity exists for only a very few businesses - businesses with a combination of high non-EU exports and high market readiness. But it still involves finding the right buyer in a world where buyers have suddenly dried up ...and you need the right business broker to help you get there.
Another reason not to sell now
During times of great uncertainty businesses cut back on spending, tighten their belts, become more risk averse. The M&A market in the UK was riding a high in 2015. In 2016 I have no doubt it will see a dip, maybe a sharp one. In the environment we have today, where we don't know how Article 50 negotiations will play out, don't know how our economy will be affected, don't know what emergency measures may be imposed by the government, the BoE or the EU, capital investments are likely to be frozen, if not cut back, thus reducing the appetite for acquisitions. Strategic investors will be thin on the ground over the next few months. Financial investors still need a good place to store their money and see returns, but they'll look for safe haven investments.
Conclusion: Rushing to market now solely to take advantage of the low pound is not advisable. The losses from a hasty exit and poor preparation for sale are greater than any potential gain from the cheap pound. The uncertainties, doubts and pessimism around in some quarters probably mask great opportunities. This is time to find and commercially exploit those opportunities rather than in sailing off to the horizon in waters that happen to be unusually stormy.
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After doing an undergrad degree in accounting (India) and reading for an MBA in finance (USA) - in addition to taking professional exams in Cost & Works accounting and in Banking - I decided that this is all too complicated. So I spent 35 years buying and selling small businesses, and running them.
My full time occupation now is...