M&A is back, so be prepared!

January 24, 2010

I’m no pundit, but all my senses are telling me that 2010 could be an awesome year for ambitious, well run, businesses. As someone told me earlier this week, luck happens when opportunity and preparedness collide. So, as the well known motto goes; “Be prepared”!

 Here are five reasons for my enthusiasm:

  • The world economy is recovering. The UK may be behind the curve but that won’t mean a lack of opportunities. At least some of these will come at the expense of less well run, failing businesses, where market share or other assets will be up for grabs.
  • Entrepreneurs are resilient and individual capitalism is the future. M&A activity will return as the realisation dawns that there may never be a better time to acquire good businesses at realistic prices.
  • On the other side of the coin, owners who have been unwilling or unable to sell their businesses will reappear. Death, divorce and retirement are a constant and don’t disappear in recessions – expect an increase in the number of sellers as the economy plays catch up.
  • There will be more help for entrepreneurial businesses and access to funding will improve. Expect a mixture of helpful government policy, increased bank lending, more business angel activity and a resurgence in earlier stage and mid-market private equity.
  • And finally, we are bored with recession! It’s not a very scientific observation, but the UK has always shown its mettle in times of stress, with ingenuity and collaboration coming to the fore. It will be no different this time, with the entrepreneurs and SMEs that employ the vast majority of our population leading us out.

Whether you’re a buyer or seller, this link may help you identify your options.

http://www.smith.williamson.co.uk/corporatefinancesurgery-register

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Vision 2020- Five key themes for the next decade

January 16, 2010

Doesn’t time fly? Now we are in 2010 it’s time to consider some of the themes for the next ten years. If they are anything like the last ten, the world will look very different in 2020.

So what are the five key themes that I am thinking about as we begin a new decade?

  • Globalisation….is not something that is going to happen in the future. More and more businesses must now take advantage of cross border opportunities to increase their revenues and manage their efficiency and costs
  • Technology….is a great leveller. The pace of change is set to continue and business models will continue to evolve. Businesses that embrace technology in all its aspects will be the successes of the decade.  Those that don’t, large or small, will be overtaken (or if they are lucky, taken over!)
  • Opportunity….is exponential. We have just been through the worst recession in living memory. For entrepreneurs with vision and drive, the opportunity to disrupt markets, hire great people, keep costs low and challenge the status quo has never been greater
  • Differentiation…. is the name of the game. Successful businesses will always find a reason why customers should choose their product or service over that of their competitors.
  • Reputation….is hard to earn and easy to destroy. Who and what you are is now entirely visible to the global community, so it’s time to engage with that community and be helpful to it. 

Good luck!

Bankers, bailouts and bonuses- How to repay the debt

December 4, 2009

Political posturing, regulatory threats and an outraged media have done nothing to address the real issues surrounding bankers’ bonuses. The unanswered question is how some of the world’s banks, firmly on the ropes a year ago, are back in the business of paying mega-bonuses for 2009, claimed by some to be at all time record levels.

Subject to regulatory necessities, how banks choose to spend their money should clearly be up to them. It is simply not realistic or sensible for governments or regulators to attempt to skew the market in terms of pay and reward, however tempting or politically expedient it may seem. Interference of this kind represents the tip of the iceberg, adding to the inexorable growth of the nanny state. It follows that we need to examine the issue from the other end- the income and profits of the banks- and how these have been achieved.

Firstly, it is worth pointing out that the vast majority of bankers and banking staff are good, honourable, hardworking people who did nothing to contribute to the crisis and who will not benefit – in terms of mega-bonuses, at least – from its resolution. On the contrary, many have seen their lifelong savings wiped out through the poor performance and lack of understanding of boards of directors who failed to control, or perhaps actively encouraged, the actions of a very small minority.

But let’s get back to income and profits. We all know that the banks were bailed out by governments and that governments are paid for by us- the general public. We also know that banks are now busy rebuilding their balance sheets through increased charges and margins on loans, many of which impact on those individuals and businesses that can least afford it. Not to mention, of course, the massive fees that are being generated to recapitalise the businesses that lost money through the crisis. So far this all seems to be a one way street, a win/ win/ win scenario for the banks. And so it is.

I have not yet mentioned the real debt owed by the banks to the community- the impact of the bailout itself. Had the banks and their counterparties not been bailed out, many would have ceased to exist. Far from getting mega-bonuses, many of these lucky recipients would not even have a job.

All of this has recently been highlighted by a report issued on 17th November 2009 by SIGTARP, The Office of the Special Inspector General for the Troubled Asset Relief Program in the US (See Note 1). It’s heady stuff, involving the Federal Reserve, the US Treasury and  Maiden Lane III, a special purpose vehicle that bought the underlying collateral of a portion of AIG’s credit default swaps from a number of AIG’s counterparties- the banks.

What might have happened without any intervention is anybody’s guess, but page 20 of the report shows that over $62 billion of funds were paid out to the banks, over $16 billion to Société Générale alone, plus a host of others in the $1-$15 billion range. It’s worth remembering that this was not a bailout of the banks, but of AIG itself!

In the section of the SIGTARP report that deals with ‘conclusions and lessons learned’ there are a couple of key points:

  • The Federal Reserve tried to pursue concessions from the banks in relation to the AIG bailout, but failed. This was because the banks knew that the government would not allow AIG to fail. The banks therefore received approximately par or face value for their assets.

 

  • The unintended but unavoidable consequence of the bailout of AIG, through loans and asset purchases in connection with Maiden Lane III, was the transfer of tens of billions of dollars of cash from the Government to AIG’s counterparties- the banks.

It is clear that banks all over the world have benefited both directly and indirectly from the bailouts and that these benefits, paid for by the public, are now being used to pay bonuses and, potentially at least, reboot the merry go round in terms of asset bubbles and irresponsibility.

The question is what can be done about it? Restricting the banks outflows in terms of bonuses will only happen if there is less income or profit available. Tax and regulation are possibilities but are generally regarded as blunt instruments. But is there a fairer, more fitting, solution?

It should not be beyond the wit of man to calculate the approximate trading benefits, both directly and indirectly, of the bailouts to individual banks. The SIGTARP report is effectively a part of this process. Where the benefits were unintended or transferred value, as in the case of the AIG bailout, the resultant ‘debts’ should be recognised by the banks and repaid over time.

Such a course of action would recognise and reverse part of the taxpayers’ loss, whilst easing global government deficits.

A global oversight body should be established to negotiate and reach agreement with the banks and determine sensible and affordable repayment schedules. After all, if it can be done with MPs expenses in the UK, why not with the banks? Obama and Brown should lead it, and it’s difficult to see how the banks could complain.

Oh, and it might also reduce those mega-bonuses for a while. What could be fairer than that?

Note 1. Link to SIGTARP report:

http://www.sigtarp.gov/reports/audit/2009/Factors_Affecting_Efforts_to_Limit_Payments_to_AIG_Counterparties.pdf

 

 

How to win the lottery- Part 2

November 20, 2009

Amanda Shaw of WiFi Solutions UK Ltd and Peter Brown of Flair Leisure Products Plc liked my recent post on “How to win the lottery” and sent their own inspiring stories, reproduced with their permission below:

Amanda Shaw- WiFi Solutions UK Ltd

I started my company, WiFi solutions UK Ltd when my husband’s firm, Kodak, closed down on 31st December 2006!   It was such a nerve wracking time.

My husband has been in the IT industry for many years – so he went and studied for his Masters while I went about setting the company up and searching for business. We used our only savings to get going – a major risk.   And a huge shock to me as I’d been at home bring our children up for 12 years – I’d lost all my confidence and had to learn everything from scratch. Our youngest had just started school and I’d actually planned on joining the gym and going to creative writing/cookery classes.   Somehow, I knew it wouldn’t happen that way – a kind of premonition if you like – and anyway, life never works as you plan in any event!

Three years on and we are still here, in our infancy and working like mad.   But I am now working on ‘ramping the business up’ and going all out to get our name out there.

I tend not to think about what has to be done on a day to day basis – I keep the end goal fixed firmly in my head and that is what I am working towards.

I’ve met some amazing people along the way so there’s no way I am giving up. You absolutely have to go out and find the business – it doesn’t come knocking at the door – it might be hard work and daunting but it has to be done.

www.letsgowifi.co.uk

Peter Brown- Flair Leisure Products Plc

I don’t think we have found a NEW way of building our business but certainly what we did find worked very well for us.

Flair is a company in the toy industry and our business this year has grown at a rapid rate from £21m domestic sales to around £41m whilst the market as a whole has contracted by 10% as a result of the demise of Woolworth .

A year ago we did briefly think about putting everyone on a four day week but as we felt confident about our new product offering we considered different strategies.

In studying our bigger and more corporate competitors we began to realise that they were all going into “defensive mode” and it was that understanding that made it clear to us that our competitors were  no longer competing! As a result we decided  that our best ever opportunity for growth was opening up before us so we increased our investment in new product development ,  A&P, and recruited the best people being made redundant by our competitors!

We then highlighted to all our major retailers that if they wanted to grow their business then they had to invest in companies that themselves were growing ( we pointed out that  7 of the top 10 toy companies were losing market share). At that time we modestly forecast a 27% growth in sales which in January this year seemed wildly optimistic!

As they say , you never know what a bad thing is good for and in the case of our company it was our competitors predictable reaction to the recession that gave us our golden opportunity.  

www.flairplc.co.uk

 

How to win the lottery

November 19, 2009

Have you ever won the lottery? I was reminded this week of the old joke that, to win it, it’s helpful to buy a ticket. I was also inspired by an article that defined the illiterate of the 21st century as “people who cannot learn, unlearn and relearn”. These thoughts combined to stir my entrepreneurial spirit.

Taking the lottery point, I am constantly amazed by the many struggling businesses that appear to sit on their hands, hoping against hope that their prospects and circumstances will somehow magically improve. As a friend of mine once said; “if you’ve got nothing to do, go and polish the church pews; something will happen”.

There’s a strong message here- don’t get frozen in the headlights and do nothing! For some businesses this may promote a new beginning….

But what about “learning, unlearning and relearning”? Technological change was clearly the original author’s focus but, for me, the words perfectly describe the “illiteracy” of people that go about life turning the same old handle, whilst expecting a different result. Common sense tells us that this doesn’t happen. Dare one suggest, therefore, that even if the existing model isn’t broken, break it?! Innovation and change only come through new ideas and experimentation. Many of them may not work, but the learning will often provide a roadmap to success.

Show me the money!

November 1, 2009

Entrepreneurs with good ideas or growing businesses that need funding may not realise that there is an abundance of cash out there. The banks may still be proving challenging, but they only represent one brick in a massive wall of opportunity for purposeful and determined entrepreneurs.

At the early, early stage, friends and family and business angels will be the main source of funding, but there are organisations, such as that run by Julie Meyer of Ariadne Capital,  the technology specialists, which pride themselves on getting involved. You may also want to take a look at Fredericks Foundation, a charity that helps with business support and micro- loan funding for start ups and small businesses.

At the growth stage, angels may still be an option but organisations like Hotbed, Pi Capital, NESTA and The Technology Strategy Board can provide access to a mixture of equity and debt capital to help you grow your business. Asset-based lenders, offering invoice and other finance can be found through the Asset Based Finance Association. And don’t forget about the possibility of grants from regional development agencies like SEEDA.

For more established businesses that are bumping into lending limits or struggling to raise development capital, there may be relief through VCTs or Private Equity. I like the Government-inspired Capital for Enterprise funds, providing up to £2m to profitable, well-managed businesses. They have £75 million to spend by 31st March 2010.

The opportunities are endless so don’t get frozen in the headlights.  With a good strategy, capable management and a well thought out business plan, there’s simply nothing to stop you.

 

Running on empty!

October 11, 2009

Funding: entrepreneurs and growth businesses need greater access to credit

 Entrepreneurs and SMEs will be the engine of our economic upturn. Not only are they driven, innovative and resourceful, but they employ the majority of our private sector workforce.  They are truly the lifeblood and future of our economy, so whilst I agree with Peter Jones that ‘easy-credit’ can keep lame as well as sound businesses afloat, there is an urgent need to deliver swift and adequate funding to deserving businesses.  Are Peter Jones’ comments too harsh? Yes, they are. But I am not advocating a return to the ready-credit facilities of recent years. Instead, effective government support and a more traditional and better understood banking service would be good and helpful steps.

A number of new banking initiatives [eg Sandy Chen from Panmure and the ‘Post Bank’] have been mooted recently. These show just how far the banking model of the ‘naughties’ has departed from the concept of a traditional lending institution. Entrepreneurs and SMEs could only benefit from a traditional and stable banking service which focuses, plainly and simply, on taking deposits, and lending to viable businesses. There is no room for CDOs, securitisation or complex derivatives trading in the SME world. A return to simple, old-fashioned banking would help to provide the solid bed-rock to our financial system and, if managed correctly, should also facilitate decent returns for depositors who, indirectly, will be investing in entrepreneurs and growth businesses. A virtuous and sustainable circle.

As to the effectiveness of other support, government initiatives are not working well either. All the evidence suggests that SMEs are still struggling to get funding. The much acclaimed Enterprise Finance Guarantee scheme to help viable businesses is far from the top of the agenda for most banks and entrepreneurs. Almost nobody seems to qualify for it or understand it. We all need clarity so where’s the red pen? At the macro level, quantitative easing may be helping the banks and powering the stock market, but it is doing little to support our entrepreneurs and their businesses. The lag effect means that more businesses will go bust as the economy comes out of recession, so with increasing unemployment in the private sector giving way to cuts and unemployment in the public sector, something needs to be done.

We welcome Peter Jones’ involvement in the small business sector and share his desire to champion the cause of entrepreneurs and small businesses. Viable businesses should be supported and fast-tracked to ensure that they get the funding they need, when it’s needed.  The health of our nation depends on it.

This article was first published in Accountancy Age on 8th October 2009

 

Good news……or what?

September 23, 2009

There’s so much going on in the business world that it’s difficult to know what to talk about. For the time being, the good news continues to flow and stock markets and house prices are reaping the benefit. The question is whether this can be sustained in the face of increasing unemployment and the inevitable belt tightening that will follow the massive stimulus provided by Her Majesty’s Government. On the negative side, the pound is sinking as prospects for the UK relative to other countries retreat, with even the Bank of England warning of a “long-term decline” in the pound’s value. It’s not all bad news, of course, as a lower pound means more demand for the UK’s products and services.

All of this is interesting, but nothing ranks above the importance of cashflow to our nation of entrepreneurs and their businesses. We are still hearing far too many reports of banks refusing to lend (please only complain if you are a viable business!) and large companies taking extreme liberties with credit. Can it really be that one large company is charging 10% for paying within 60 days, whilst another is charging 3% for paying invoices on time? Is this outrageous, or what?! Why not email me at  guy.rigby@smith.williamson.co.uk  with  your experiences in these areas so I can publish them in future newsletters or on my blog?

Government contracts for entrepreneurs!

August 18, 2009

There are at least two reasons why you might visit www.supply2.gov.uk  , the only official government lower-value contract opportunity portal, created specifically to provide businesses with visibility and access to smaller public sector contract opportunities.

First, if you’re an aspiring entrepreneur but are lacking that spark of an idea, supply2.gov.uk has 1,866 service classifications that you can browse through, and which could give you inspiration for your new business.

But if your business is already established and you take the time to register as a supplier, you can get free contract alerts in a region of your choice as well as gain access to UK-wide contracts through the online search function. For a small cost, you can upgrade to get alerts in a wider geographic area.

So if you haven’t already visited the website, make sure you take a look at this route to winning potentially lucrative Government contracts.

Enterprise Finance Guarantee Scheme- Where’s the red pen?

August 6, 2009

Under the current arrangements, funding for entrepreneurs and growth businesses under the Government’s Enterprise Finance Guarantee (EFG) Scheme is going to be limited. It’s time to broaden the criteria to make this a leading form of lending rather than an also ran. 

Nobody want loans to be made to businesses that aren’t viable, but subject only to this, the significant barriers to entry need to be removed. In particular, the existence of any personal assets is a major problem.

Lenders say that the scheme is gathering pace, but admit that it is not aimed at the majority of businesses. In addition, in many cases, they are requesting personal guarantees, a further disincentive and risk to hard-pressed entrepreneurs. 

So if, as we are told, the banks still aren’t lending, why not take a red pen to many of the conditions and open the scheme up to those deserving and viable businesses that simply can’t tick all the boxes?