In due time: Good Housekeeping and Business Sales

Just as there is a wide variety of business sectors, there is an equally broad number of reasons why people start a business in the first place.

The vast majority of companies in the UK are small or medium-sized enterprises (or SMEs, for short) (https://commonslibrary.parliament.uk/research-briefings/sn06152/#:~:text=Businesses%20by%20size&text=75%25%20of%20UK%20businesses%20had,employment%20and%2014%25%20of%20turnover).

Some are formed by individuals who simply want to be their own bosses, while others are set up by men and women wishing to establish a profession and a source of income for their families.

There are others, however, which are founded with one eye firmly fixed on their being sold at some point in the future.

In some cases, the business plan is geared to the kind of growth which might make a business attractive to those interested in acquiring a corporate success.

Nevertheless, some firms view being taken over as a way of injecting new life or longevity into brands which may have been developed over decades.

The latter appears to be the case for the fashion retailer Ted Baker.

Twelve months ago, it reported a rise in pre-tax losses following a 44 per cent dip in total sales during the pandemic (https://news.sky.com/story/covid-19-ted-baker-puts-brave-face-on-pandemic-sales-slump-12332116).

Fast-forward to April this year and the chain was the target for a number of approaches after being put up for sale.

Although Ted Baker entered into detailed discussions with one preferred bidder - rumoured on the business pages to be the American group Authentic Brands - those talks have now collapsed (https://www.thisismoney.co.uk/money/markets/article-10892025/Ted-Bakers-preferred-bidder-walks-away-takeover-deal.html).

That news led to 20 per cent being wiped off the value of Ted Baker's shares.

In a statement issued to the Stock Market, the retailer stressed that the bidder's decision not to proceed with a purchase "was not linked to its due diligence review of the Company" (https://otp.tools.investis.com/clients/uk/ted_baker1/rns/regulatory-story.aspx?cid=898&newsid=1591539).

Even so, the development has focused fresh attention on the importance of due diligence on the part of those wishing to buy or sell a company, regardless of size or urgency.

Across the entire life of a company, keeping your proverbial house in order is more than just an administrative nicety.

If there is even a possibility of the business being sold, it can quite literally pay to review employment and supplier or sale contracts, agreements related to the ownership or maintenance of any business property and, of course, your company's financial health.

Cash flow - now and into the future - is, naturally, a notable aspect of day-to-day commercial functions even without an intention to sell.

It becomes more of a critical issue when the prospect of a takeover is immediate.

Determining an accurate reflection of a company's performance, its income and tax position is of interest to potential buyers.

Nevertheless, it's possible - and, I would suggest, actually advisable - to engage in such housekeeping on a regular basis.

Reviewing the paperwork is not necessarily to everybody's taste. There are, though, advisors such as company lawyers who can quickly and effectively undertake due diligence long before a business enters a sale situation.

Making sure that there are no surprises is particularly important to larger enterprises which may have more complex elements to attend to, including overseas' operations and the attention of regulators.

Any difficulties which arise can derail a takeover but also impact on perceptions of broader economic health.

The Office for National Statistics (ONS) has detailed how merger and acquisition (M&A) activity in the first quarter of this year has experienced a 35 per cent fall when compared to the last quarter of 2021 (https://www.ons.gov.uk/businessindustryandtrade/changestobusiness/mergersandacquisitions/bulletins/mergersandacquisitionsinvolvingukcompanies/januarytomarch2022).

As well as the frequency of such deals reducing, the value of completed transactions has also declined.

The ONS data focuses on larger corporations and possibly reflects the impact of turbulence caused by the conflict in Ukraine and wider supply chain headaches which my colleague Elizabeth Selby wrote about on this 'blog only a fortnight ago (https://www.bexleybeaumont.com/indiv-feature?id=76).

It also belies what people are seeing in relation to SMEs - a sector which remains largely buoyant.

If anything, the latest figures perhaps signal a shift towards a buyer's market and the importance for sellers - seeking to maximise any exit value - to ensure that their businesses are well-prepared for going under the due diligence microscope.