How should a company owner considering a sale respond to a change of government?
Just before the referendum in June 2016, I was, entirely co-incidentally, acting for the shareholders of two completely separate UK companies who had both received attractive seven figure offers to sell their shares from two completely separate Belgian buyers. Both transactions had nothing to do with each other. For reasons of client confidentiality, I had no reason to tell any of my clients what the others were doing.
Then we had the referendum. It’s fair to say that both sets of Belgian buyers were extremely surprised by the Referendum result (as was I). And both buyers acted in completely different ways.
The first set of buyers stopped all negotiations in their tracks and pulled out, citing that the future of the UK economy had immediately become too uncertain and the transaction now represented too much of a risk. The others couldn’t believe their luck and pressed forward to completion as quickly as they could. Their argument was that the sudden 12 per cent drop in the value of Sterling had given them an incredible opportunity to buy into an economy which they perceived as open and robust, in spite of the prevailing uncertainty.
The actions and the thought processes of the two distinct sets of Belgian buyers took me back to some similar scenarios eight years earlier, just before the crash of 2008. At that time, I had been negotiating the sale and purchase of a large number of companies and businesses whose owners had been buoyed up by the seemingly endless growth of western economies during the first decade of the 21st century. Remember the then chancellor of the exchequer, Gordon Browne, claiming he had abolished boom and bust? Well, I didn’t believe him at the time (it was as preposterous a claim as if he had said that he had abolished gravity) and, of course, history proved him wrong.
The reason I mention this, is that too many sellers got greedy prior to 2008 and thought they would wait ‘just one more year,’ before cashing in their chips. No one can accurately predict the top or the bottom of every market or every cycle. A lot of luck is involved. And, in my view, it’s never wrong to take a profit. A number of sellers held on too long and many of their businesses never recovered from the crash.
So, how should business owners considering sale or retirement over the next few years, act in the face of the current economic and political uncertainty?
I firmly believe that they should be preparing their businesses for sale right now. And they should be looking, if possible, to sell before the next general election, which, if there isn’t an unscheduled one due to the current political turmoil, is not due to take place until [2021].
My reasons for this are not based on the economic outlook. After all, none of us can predict the future anyway entirely (and, in any event, if the UK economy flounders there are likely to be more nationalities than just the Belgians wanting to pick up some quality bargains).
Instead, it’s the political uncertainty that concerns me most. Quite simply, Jeremy Corbyn will have his eyes firmly fixed on abolishing Entrepreneurs’ Relief, a tax described in a paper by the Resolution Foundation in only August 2018, as ‘the worst tax relief in the UK.’ Indeed, in his autumn 2018 budget speech, the Chancellor, Philip Hammond, stated: ‘I have received representations that I should abolish Entrepreneurs relief and put the savings towards funding our NHS…’
Entrepreneurs’ Relief levies a hugely advantageous 10 per cent tax rate on the sale of a company or business, which has the potential to provide a £10m lifetime tax advantage to an entrepreneur. It costs the Treasury round £3bn a year in lost tax revenue and is regarded by many in the Labour Party as tempting low-hanging fruit for abolition.
In spite of Mr Corbyn’s unpopularity across a lot of Britain, I can foresee a future ‘anti-Conservative’ coalition elected in the face of continuing antipathy towards the Tories. If that were to occur, don’t bet on Entrepreneurs’ Relief surviving for very long into the next Parliament.
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