The owners of the majority of UK businesses with a turnover of £5 million upwards are pursuing an exit strategy, according to new research.
In a startling reflection of the uncertainty prevalent in the UK business environment, 65% of owners are looking to sell off their enterprises, with two in five planning to exit within the next year.
Expedited business owner exits
Exit plans across the UK’s business landscape have been fast tracked, with nearly a quarter of business owners having accelerated their plans to sell or wind down their business in the past 12 months.
The political landscape is the primary motivator for this decision. With a General Election set to take place within the next 15 months and Labour having a commanding lead in the polls, concerns over a potential change in UK government and subsequent changes to the tax regime have been cited as the top reason for UK business owners choosing to expedite their exit plans, cited by 25% of respondents to the survey.
Challenges accessing capital and long-term investment have also been cited by many business owners. One in four business owners have been encouraged to sell due to ongoing challenges accessing long-term capital, while 18% have cited the rising cost of this capital as a key motivation to sell. A similar number have cited the withdrawal of a key investor as behind their decision to pursue an exit strategy.
Complications navigating post-Brexit trade arrangements have been cited by 18% of business owners as a factor in deciding to sell, while 23% of business owners have decided to sell due to the toll that high inflation has had on their business, pushing up the cost of labour, energy and materials.
Personal factors are also at play, with 25% of business owners hoping to unlock the equity tied up in their business to contend with current personal finance challenges.
As well as 23% of business owners indicating that they have brought forward their exit plans over the past 12 months, 36% also said they had postponed their exit plans.
Tom Shave, partner at leading wealth management and professional services group Evelyn Partners, that conducted age research, commented: “After a number of challenging years for business owners, it’s understandable that many might be considering their position for the years ahead. As the General Election nears, many business owners are concerned about the potential for tax changes, such as an increase in the rate of capital gains tax. Businesses also continue to face headwinds when it comes to their operations and long-term funding. It is therefore understandable that many business owners are viewing the current climate as an opportune time to realise the gains of their success. However, others have delayed their exit plans which is likely to be driven by current economic uncertainty and potential worries that they may not get the best price for their business, as evidenced by a slowdown in M&A activity.”
Preferred business owner exit strategies
When it comes to the exit strategies business owners are pursuing, selling to private equity is the preferred exit route. One in five (20%) business owners pursuing an exit strategy are looking to sell to private equity, with 11% looking to sell a minority stake, while 9% of business owners are looking to sell a majority stake.
Employee ownership trusts are also a popular option for business owners, cited as the preferred exit route for 18% of business owners.
Shave added: “Exit routes will be unique to each business owner, and while there are clear trends for certain strategies in the current environment, it is important they pursue an exit strategy that is best suited for them and their business.
“We’re witnessing an increasing number of business owners turning to employee ownership trusts as their preferred exit strategy. Setting up an employee ownership trust can be a swifter process than going to market and also enables business owners to retain greater control of the valuation of the business, compared with external exits where the business’ value is worth what the market is prepared to pay.
“However, business owners should consider how their exit strategy aligns with their business and personal goals for the future, whether that’s generating income, aligning with succession plans, or unlocking maximum equity to pursue a new project. Business is never more personal than when business owners come to sell. It’s therefore important that founders seek holistic advice that considers both the commercial and personal implications of their sale plans.”
