Recession places groups in mood to expand

15th June - 2009
Nearly three-quarters of owner-managed businesses plan to make an acquisition or establish a joint venture within the next three years as they take advantage of opportunities for expansion created by the downturn.

A further 21 per cent plan to expand abroad, according to a survey by Baker Tilly, the professional services firm, of more than 300 directors of companies with turnover ranging from £5m to £50m-plus.

But more than half of the respondents predicted more redundancies and expected a further drop in sales in the coming year. The snapshot was taken in December and February, before the signs of economic recovery started to appear.

Thirty-eight per cent said they expected to make an acquisition over the next three years and 35 per cent said they expected to establish a joint venture with a former competitor.

"It's a once in a generation opportunity for businesses to grow through acquisition. If you are in the fortunate enough position of having cash or access to finance there are some fantastic bargains out there," said Rob Donaldson, Baker Tilly's head of mergers and acquisitions. "You have to be careful as some of the businesses are very cheap for good reason, but there are some great deals."

But 40 per cent of respondents said they planned to exit from their businesses within the next decade, with more than 20 per cent expecting to do so within five years.

Mr Donaldson said "although nobody in their right mind would try to sell a business today unless they have to, it is a good time to be getting ready".

Just over a half predicted a drop in staff headcount in the coming year, while 55 per cent expected a fall in operating profits.

Larger businesses were the most optimistic, with the smallest ones being the next bullish. The mid-tier of respondents were the most pessimistic, with more than half expecting sales to fall.

Baker Tilly said that was because large companies were often better capitalised and in a stronger position to cope with a slowdown, while small companies could be more nimble and quicker at adapting to changing circumstances. Those in the middle needed to consider where they could improve efficiency.

"Funding flexibility in these situations is important. While obtaining finance is clearly difficult, there is funding available provided you understand where to look," Mr Donaldson said.

"Between various government initiatives, the slowly healing banks, and the mountain of private equity funding sitting on the sidelines, money can be found."