UK mid-market companies under pressure to sell but the economy could benefit if they scaled up instead
The UK mid-market could be on the verge of a wave of pressurised sales according to new research. A study carried out by national law firm Mills & Reeve is based on the opinions of 500 leaders of medium sized businesses, reveals that many are looking to sell even if they could scale up and increase the value of their business in the long term, causing an unwelcome drag on the UK economy.
The research throws up some disturbing indicators, among them:
· One third of UK mid-market companies poised for sale, half of those within the next two years
· Half of mid-market business leaders report an increase in investor interest in their company
· More than a quarter of mid-market business leaders “forced” into the decision to sell
· UK economy at risk from pressurised decisions to sell instead of scale
One third (33 percent) of mid-market business leaders are actively planning on selling their company, with half (51 percent) of those expecting a sale by April 2017. More than half (55 percent) are also experiencing an increase in investor interest in their firm.
While this could be interpreted as a sign of a dynamic mid-market, the report reveals that in some cases the decision to sell has been made due to a number of factors beyond the business owner’s control. More than a quarter (29 percent) of mid-market business leaders who are looking to sell their company feel they are being “forced” into this decision. Two fifths (39 percent) fear that they will “miss the boat” if they do not exit immediately and deal activity dies down. A third (34 percent) are concerned that they will sell too soon and so not realise the full value of their business.
Claire Clarke, partner at Mills & Reeve, comments: “The mid-market currently accounts for a quarter of the UK’s turnover. Not only is this stalwart of the economy capable of delivering even more growth and jobs; from its ranks will emerge Britain’s next generation of world-leading large enterprises. “While selling may be the right choice for some companies, scaling up can, with the right support, offer greater returns for business owners, shareholders and the UK economy as a whole.”
Full Scale Ahead
The study further reveals the impact of pressurised sales on the UK economy. Entitled Full Scale Ahead: Paths to growth for ambitious UK businesses it has been released ahead of a series of nationwide events supporting mid-sized businesses to scale up and achieve their ambitious growth plans. It shows that more than two thirds (69 percent) of mid-market business leaders feel the UK economy would be stronger if more companies were scaled up rather than sold. Three in five (63 percent) worry about the country’s economic future because so many of the UK’s greatest prospects are sold before they reach their full potential, and two fifths (43 percent) say business exits have had a detrimental impact on their local economy.
Despite the importance of scaling up to British business owners and the UK economy, business leaders face numerous challenges in achieving this. More than two fifths (44 percent) claim it has never been so hard to grow their business and a similar number (40 percent) believe scaling up involves more risk than selling. In this challenging environment, almost half (48 percent) will switch their strategy from growth to survival if the UK economy shows signs of deteriorating.
Claire Clarke adds: “Owners of medium sized businesses emerged from the recession with confidence and the belief that they could grow their business with the right finance and support. Yet, to many, scaling seems more challenging than targeting an exit. Both scaling up and selling a business presents its challenges. Those owners looking to sell their business should hold their nerve, not be pressurised into exiting too soon, and instead wait for the optimum time to exit. Those looking to scale should put the right people and processes in place to enable them to fulfil their potential, and must build scalability into their business model.”
To download a copy of the report or to read case studies from some of Britain’s most inspiring scale ups about how and why they scaled their business, visit www.fullscaleahead.co.uk or www.mills-reeve.com.
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