🎙️Buying vs Building: M&A Expert Alan Shala on the Strategic Path to Business Ownership
Listen to my full conversation with M&A expert Alan Shala as we explore why, with 40% of UK businesses failing within three years, buying an established enterprise offers a compelling alternative to starting from scratch.
While starting a business from scratch often dominates entrepreneurial discussions, business acquisition presents a compelling alternative path to business ownership. With approximately 40% of UK businesses failing within their first three years, the option to purchase an established enterprise deserves serious consideration.
In my recent conversation with Alan Shala, Head of Corporate Acquisitions at Chelsea Corporate Limited, we explored the intricacies of business acquisitions and why this path might be particularly attractive in today’s market.
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Building the Foundation for Successful Acquisition
The journey to acquiring a business begins with assembling the right team. As Shala emphasizes, this isn’t just about having capital – it’s about surrounding yourself with expertise. A complete deal team typically includes a lender for acquisition funding, a buy-side advisor for identifying opportunities, and professionals for both financial and legal due diligence.
The current market presents unique opportunities, particularly with a significant wave of baby boomer business owners looking to retire across the UK, Europe, and North America. However, success in acquisition isn’t just about finding available businesses – it’s about demonstrating value to sellers and building trust from the outset.
“It’s so important that we have a strong relationship with the seller because oftentimes we will retain them in the business for a period of time, six months to two years, three years, perhaps even longer,” Shala explains. This relationship becomes crucial not just for the transaction but for the subsequent transition period.
Navigating Funding and Deal Structures
The financial landscape for business acquisitions is showing promising signs, with declining interest rates making funding more accessible. However, there are clear parameters that potential buyers should understand. Lenders typically prefer minimum loan sizes around £750,000 and favour businesses with strong asset bases or consistent cash flow histories. A track record of three to five years of positive financial records often strengthens the case for funding.
Modern acquisition deals in the UK follow relatively consistent patterns, though with sector-specific variations. Typically, buyers pay between 50-70% of the consideration at completion, with the remaining amount deferred over two to three years. These deals often include performance-based clawback provisions, protecting both parties’ interests and ensuring alignment of goals during the transition period.
Due Diligence and Risk Management
The importance of thorough due diligence cannot be overstated. Shala points out that transparency during the acquisition process is crucial, and any reluctance to share essential information should be treated as a significant red flag. This extends beyond just financial documentation – it encompasses everything from client contracts to operational procedures.
Partner Offer
For first-time buyers, Shala recommends having a minimum of £250,000 available for smaller acquisitions, but the focus should be on businesses where you can add tangible value. “Generally, at least in our experience, buyers of businesses see between 8 to 12 deals before they complete on one,” he notes, emphasizing the importance of maintaining strong deal flow and not becoming too invested in any single opportunity.
Meet Alan At The Business Show 2024
For those interested in exploring business acquisition further, I’m excited to share that Alan Shala will be speaking at The Business Show at ExCeL London (13-14 November 2024). His session, “Getting your business acquisition right – essential tips for success ” takes place on November 14th at 15:00 in Theatre 8.
The event, which is free to attend, offers not just expert insights but also the chance to win a £100,000 startup package and valuable networking opportunities. You can register for free tickets here .
For additional insights on business acquisitions, connect with Alan Shala on LinkedIn or attend Chelsea Corporate’s regular webinars .
This article is part of The Sovereign Magazine’s coverage of The Business Show 2024. The Sovereign Magazine Podcast brings you conversations with industry experts and successful entrepreneurs, delivering practical insights and professional expertise across various business sectors.