Financial Times – 10 June 2006
Rafts Of Business Sales Gives Millionaires Club Strength In Numbers
The growing number of baby-boomers reaching retirement age partly explains the sell-off by families and entrepreneurs, writes Sarah Spikes.
A boom in the number of families and entrepreneurs selling their businesses is under way.
It looks set to continue for at least another year but already it has produced a legion of new British millionaires.
Only this week, three new ones were created.
Ruth Matthews and James Burnie, a husband-and-wife team of university professors, agreed to sell their biotechnology business, NeuTec Pharma, to Novartis for ₤305m.
They will share ₤45m from the deal. And Bizspace’s Larry Lipman made £10million on the sale of the managed office space company to rival Highcross for ₤77.6m.
Others who have made fortunes recently by selling their businesses include Lord Milford Haven, Sir Peter Vardy and the Pankhursts (see table).
Indeed, the number of businesses available on BusinessesForSale.com, a website that matches buyers of companies with sellers, has grown to slightly more than 30,000 – up from 12,000 at the start of last year.
In 2004, they had 10,000 businesses for sale and in 2003 it was 8,000.
Many of these companies are small but a similar trend is evident among larger ones too.
Andrew Morris, a director at HSBC Private Bank, who has many entrepreneurs as clients, says: “There has been a clear increase in the number of companies being sold through trade sales in the last 18 months.”
One of the main drivers behind this trend is that baby boomers are reaching retirement age and few have children who are willing or able to take on the family business.
Also at work is the sense that business valuations are at or near their peak.
“Many medium-sized, privately held businesses are family businesses in which there isn’t a succession plan in place but the current directors are looking to retire,” say Steve Batch, managing director for Venture Business Brokers, which helps smaller businesses sell themselves. He says the number of business owners, both retirees and young entrepreneurs, who are selling their businesses to move abroad has increased in the last year.
“We’re seeing this trend throughout all industries – maybe because UK money goes further in Portugal, Australia and North America,” he says.
“There are a lot of businesses started in the seventies, where the founders’ retirement is coming up,” says Howard Leigh, director of Cavendish Corporate Finance, which only advises sellers.
“Traditionally, the sons and daughters of business owners would have gone into the firm. Now the children all want to go and work for Goldman Sachs.”
Some of the medium-sized and larger companies clearly feel the market is near its peak.
“There are quite a few venture capital companies around now which are buying stakes or whole businesses, and more businesses are seeing now as a good time to sell because of a bearish economic outlook,” says Mr Morris, of HSBC Private Bank.
He adds that business owners have two hard decisions.
First, whether they really want to sell and, second, what to do with the money and themselves afterwards.
Paul Coleman, the outgoing chief executive of Systems Union, finds himself in just that situation now.
In April, he and two board members who founded the software company sold it to Extensity of the US.
Mr Coleman earned ₤7.5million from the deal and the founders, Bob Martin and John Pemberton, made ₤10.4m and ₤23.8m respectively.
Mr Coleman says: “It’s true that, as head of this company, I’ve had a lot of authority and a lot of status and it’s not easy to give that up but it was the right thing for the company and, with all the money I’ve made, I can’t say I’m crying into my beer.”
Mr Coleman steered Systems Union through a difficult time – when he came on board in 2000, the company was a failing dotcom business with about ₤1m in revenue and a staff of nearly 1,800.
He said the early years were particularly hard and the stress may have contributed to his being taken ill while on a business trip in Latin America in 2001.
“I lost more than three stone and was in the hospital for some time,” he says. “Then, while still very ill, I worked from home for a while and it’s taken me years to start to get back to where I was before that – I’m not sure what I’ll do or how I’ll use the money I’ve made.”
Pub groups and television production companies have been some of the most active industries for trade sales.
Peter Hansen, of PC Hansen & Co, the boutique corporate finance advisor to pub owners, says there is no sign of an end to high asset prices.
This week, Punch Taverns sold 290 pubs for a higher-than-expected ₤571m.
Higher valuations are being driven in large part by industry consolidation and rising property values.
Mr Hansen says: “It has been a very good time to sell. In 2002 and 2003, prices started to move up, particularly for leased and tenanted pubs, and, ironically, the smaller pub companies have done better than the larger ones.”
Valuations among television production companies – typically founder-owned business – have been driven up by a change in the regulations that allows them a tighter hold on their intellectual property rights.
This has encouraged a spate of sales.
Colin Howes, a commercial partner at Harbottle & Lewis, the law firm that has advised vendors including Tiger Aspect, maker of Mr Bean and The Vicar of Dibley, says: “It certainly has been a good time to sell and I think there will be a lot more to come. People are just waking up to the fact there is more value in the TV production companies than they thought.”
Larry Lipman, the 49-year-old founder and chairman of Bizspace, is upbeat about the future for business sales. “If you have a good business, no matter what the state of the markets, you will always find buyers for it.”
Others are less sure.
“I think the market for sales will be good for another six months or so but after that I’m not so optimistic,” says Mr Leigh at Cavendish.
Shrewd entrepreneurs can smell the change in the air. The same is true of the private equity community, which has been selling like mad. They can smell the end of the bull market.”
Paul Clarke may be one such shrewd businessman.
He recently sold a golf course and club business in part because of intensifying competition, and is now mulling a new business that would build retirement homes on a piece of land he has owned for several years.
He says many of his friends who own businesses are starting to wonder how long the boom in company sales and the strong trading conditions can last. Some are planning to sell up.
“When you’re in business for yourself, it’s all down to you,” he says. “No one will help you if you fail and you’ll be out of a job. I think more business people are starting to wonder how long these great conditions can last.”
“Traditionally, the children would go into the firm. Now they all want to work for Goldman Sachs.”
MUSING ON MAKING MILLIONS
Larry Lipman
Founder and chairman of Bizspace, the provider of managed space for companies that is being sold for ₤77.6m, says: “The procurement of expert advice is good value for money. One often looks at the cost of advisers and cringes but good advice is worth the money.”
Paul Coleman
Sold Systems Union (April 2006), of which he was chief executive and 1 per cent owner, to US software firm Extensity for ₤220.5m. Got a ₤7.5m pay-out as part of the deal. “I put in so much blood, sweat and tears into Systems Union and I am really deeply attached to the company – but you cannot lose sight of the reality of what’s best for everyone.”
Marc Worth
One of the owners of Worth Global Style Network, the internet style trends service sold to Emap for ₤140m, later told the FT: “We never saw ourselves as media batons in 10 to 20 years’ time. We always thought of ourselves as entrepreneurs.”
Howard Leigh
“At Cavendish Corporate Finance, we find there is no question that the market has been extremely attractive for sellers of businesses in the last year or two. Many of those people pushing the button on a sale have been storing it up for years.”
TIPS FOR MAKING A FORTUNE FROM SELLING YOUR BUSINESS
- “You must know your own business inside out because all buyers crave information – know your business well and represent it accurately.” Marcus Markou of BusinessesForSale.com.
- “Most private businesses are not run for profit, they are cash-driven. Businesses are typically sold and valued on multiples of profit. Private businesses may need to be restructured to sell for the best valuation.” Howard Leigh, director of Cavendish Corporate Finance
- “Recognise that often a trade sell isn’t a clean exit – management may be locked into the company for 6 months to 3 years and some portion of the money isn’t paid until completion. Plan for when you want to sell accordingly.” Steve Batch of Ventura Business Brokers.
- “Must haves: Absolute self-belief, focus, drive and determination.” Andrew Morris of HSBC Private Bank
- “In creative business, where human capital is relatively more important than in other industries, the crafting of contracts is a core skill for retaining people.” Professor Chris Higson of London Business School
New fortunes
- James Burnie and Ruth Matthews will share 45m from the sale of NeuTec Pharma to Novartis, agreed this week
- The Brown family shared 76m cash when Ladbrokes bought the Jack Brown betting shops chain a year ago
- Lord Milford Haven and his family trust collected 100m from the site of USwitch.com, the price comparison website, to EW Scripps in March
- Sir Peter Vardy and his family received 150m from selling Reg Vardy, the car dealership group, to Pendragon in February
- Ashley Faull and John Egan sold Sit-up TV, which they founded, to Telewest a year ago for 253m
- Paul Coleman, chief executive of Systems Union, made 7.5m from selling to Extensity of the US in April. Founders Bob Martin and John Pemberton made 10.4m. and 23.3m respectively
- Larry Lipman, founder of Bizspace, will make 10m from selling up this week to Highcross. Jack Patchey’s vehicle, Trefick, will make 18m from the deal.
- Nick Powell and Nick Southgate, owners of Ricochet, the television production company behind Supernanny, sold out in November to Shed Productions, producer of Footballers’ Wives for 30m
- Julie and Steve Pankhurst, founders of Friends Reunited, shared about 30m from selling out to ITV in December
- Marc and Julian Worth shared 115m from selling their online style trends company, Worth Global Style Network, to Emap for 140m in October.
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