There may be reasons for fearing the worst for the UK economy as we head allegedly towards a second "Winter of Discontent". Here at the Supper Club, we take a more upbeat perspective.
Maybe it’s the constant positivity of the founders we spend so much time with, but we prefer to look for signs the UK economy is far from the cliff's edge.
One such sign, which we came across at a recent Supper Club member workshop on Maximising Capital Value, run in association with finnCap Cavendish, is the boom in M&A activity in the UK. Research by finnCapp Cavendish shows there were over 2,700 deals in the first half of 2021, while separate evidence from Epsilon Research shows valuations are also at an all-time high (see graph, below).
A side effect of this boom is that buyers of all stripe need to pull together a bigger prospect pipeline and are therefore instigating more early-stage conversations. So what should founders do when approached in this way? Peter Gray, a partner at finnCap Cavendish, offers the following golden rules:
Don’t seem too keen. Play hard to get and say you have no current intention to sell the company, although it’s fine to drop in the fact you frequently get approaches from potential suitors.
Meet on your terms. If you agree to meet, or do an extended call on the back of an unsolicited approach, don’t accept the first time suggested (see point 1 above). Also, don’t go to their offices, let them come to your offices. If that raises confidentiality issues, suggest somewhere convenient for you.
Talk about growth. When discussing your business, talk about its significant growth potential (hence you would be selling yourself short by selling now). But don’t give specifics on financial projections; they may come back to haunt you when you do launch a sale exercise, especially if you have underachieved the numbers.
Don't mention a price. Never give an indication of an acceptable price. It will undermine the message that you are not for sale and this must be the consistent message.
Ask lots of questions. Ask about them, the business and their views on the market and competitive landscape. If they are an overseas corporate, ask about their local market. This can help you determine if there is an opportunity to enter their market.
Keep records. Make a note of any unsolicited approaches you receive for future reference and if a meeting or call ensues, ask for or report detailed notes of what was said.
Don't overdo it. Don’t go overboard with meetings with private equity houses. Once you have met a few, the law of diminishing returns quickly sets in. It will just distract you from running your business.
Keep your guard up. Watch out especially for private equity houses that contact you, then go behind your back and approach your management team, with a view to encouraging them to undertake an MBO.