UK entrepreneur, Graeme Carling discusses why businesses don’t sell. It is reported that over 90% of the businesses listed for sale will not ever sell and will eventually end up being closed down. Serial entrepreneur and Managing Director of United Capital, an investment organisation that is consolidating the fragmented UK building services and facilities management sector, offers his expert business insights into what goes wrong and how business owners looking to sell can improve their chances.

Why Businesses Don’t Sell

The most common issue faced when acquiring businesses is the seller’s unrealistic expectation of the value of the company. This is usually from broker’s touting for business and offering free valuations, basing the figures on face value.

Brokers will take the information provided by seller, and it is their job to make the company look as good as possible to buyers. However, after a buyer applies due diligence, scratches under the surface and takes into consideration EBITDA – the most commonly known way of valuing a business – there becomes a considerable difference in the broker’s valuation and the market valuation.

The broker’s valuation provides an unrealistic expectation of the business’ value and as a result, 90% of businesses won’t sell.

How Should Businesses be Valued?

As a buyer, it’s important to find out the exact cost of running the company before valuing the business. For example, the owner and directors of a business are most likely to take their wage from dividends as opposed to a salary as this is the most tax efficient choice for the business and director. However, it is very unlikely that a broker will be looking at this level of details. Say there are three directors at £100k, that would be £300k less in value for the business.

What is the Broker’s Role?

The broker is there to get the seller as much money as they possibly can. They’re there to “beef up the hog”. Whether that’s telling sellers to reduce expenses where they can, drive revenue to create a greater EBITDA (earnings before interest, tax, depreciation and amortization) total.

Any credible buyer will be able to see through this with the process of due diligence and will get to the bottom of the figures by taking a more holistic approach at the business’ performance by potentially going back years.

A broker won’t explain that payments for buying a business are typically staggered, possibly with performance reviews and other indicators being reached before the next payment. It’s unlikely that any buyer would provide all of the money upfront as this would leave themselves with the full risk.

Importance of Advisors

Anyone who is looking to sell their business, make sure you appoint experienced legal and accounting advisors. You might have ones that you use for everyday business needs, but when it comes to selling you want advisors who have a wealth of experience in the buying and selling business.

At United Capital we prefer to deal with sellers directly than through brokers. The reason for this is we find that more motivated sellers are looking to speak directly and are invested in the company, whereas the brokers are working on behalf of the seller.

Our Criteria

We deal with motivated sellers, where we can identify a strong management team, proven track record of financial growth. Strong businesses that can prove they’ve been successful in their industry. Be honest and clear.

Graeme Carling, who bought McGill earlier in the year, has completed his acquisition of Angus-based electrical, plumbing and heating firm, Alliance, which has annual turnover of over £3.5million, in what is his second company purchase of the year.

Alliance, a company which delivers multi-trades services to commercial, private and public sector customers, joins Carling’s group of businesses during a period of expansion. Graeme Carling outlined its plans for rapid growth after purchasing former Scotland Top 500 construction company, McGill, after it entered administration in February.

Carling confirmed that Alliance will retain autonomy and identity rather than becoming part of McGill and commented;

“We are excited to complete the purchase of Alliance having signalled our plan for growth through acquisition earlier this year. Alliance is a solid and well-performing company with strong management and an expert team. The business will operate as it currently does, with the support of our board of directors and team. We currently have a number of other acquisition targets, some of which are already at legal stages and subject to due diligence, should complete in the early stages of next year.”

Alliance Electricals’ Managing Director, Errol Lawrie will continue to lead the business, which delivers electrical, heating and plumbing and fire and security services across the East Coast of Scotland. Errol, who has led the business since 2007, commented;

“This is a very exciting point in the history of Alliance and this deal signifies the combined effort of our entire team to grow the business to this point. The acquisition by Graeme Carling opens up many new opportunities and I am sure under the stewardship of Graeme and his board of directors, Alliance will continue to grow.”

Alliance Electrical, which will celebrate its 25 year in business next year, operates from its headquarters in Forfar and has over 50 employees.

About United Capital

United Capital is an investment group which is consolidating the fragmented UK building services and facilities management sector by acquiring well-performing, profitable companies, operating in the sector, who have a strong management team and clear growth strategies.

United Capital, through an established network of agents, brokers and solid marketing, identify and target companies operating in our target sector. Our strict criteria targets companies which are consistently delivering annual turnover of between £10- £30million, achieve strong profit levels and are currently delivering large-scale public-sector contracts for Government, NHS, MoD, Local Council Authorities and Housing Associations.

Further information is available at www.united-capital.co.uk. Follow United Capital on LinkedIn or YouTube

Media Contact

Fraser Kirk: Communications & Marketing Director – fraser.kirk@united-capital.co.uk | 07531 090912

United Capital Managing Director, Graeme Carling accepted an invitation from Coventry University’s Investment Society to deliver an investment masterclass on Monday evening.

Speaking to students via video conference, experienced investor Graeme Carling told his story and offered his top tips for successful investing. The talk, a latest in a series of such delivered by Graeme as part of United Capital’s community engagement campaign, allowed University students who are interested in investing to quiz the expert. Graeme commented: “I enjoy the opportunity to talk directly to students and try to offer them some ‘real’ talk on the reality of investing in property and companies. I recently spoke to a group of property investors at an event organised by Shaf Rasul and at another organised by St. Andrews Business Club as part of their annual Business Week programme.”