26/10/2020

Tips for Business Acquisition During a Downturn

business acquisition

If you are looking to grow your portfolio and expand your business, a business acquisition is a popular way to go. With the global pandemic forcing the UK into a recession, many potential buyers may be deterred from purchasing a business. However, acquiring one during a downturn is great for investors. It means you can snap up a business for a low price that, once the economy recovers, could well give you a substantial return.

That being said, buying a business during a downturn needs to be well thought out or you could end up investing in a company that won’t make it through the recession. Here are some of my top tips for purchasing a business in the current topsy-turvey climate.

Select Your Market Carefully

In any recession or slump in economic performance, certain sectors will be hit harder than others, leaving the future of these industries is unclear. If you are not certain about the future of an industry you are thinking of buying in to, don’t do it.

Travel businesses for example may not yield a return on your investment for a long time to come. However, businesses in the healthcare niche are expected to grow exponentially in the coming years, so this would be a wiser business investment to make.

Don’t Focus Solely on Cashflow

Even if a business looks like it is doing well financially, recessions cause unpredictable and inexplainable dips in the market. Instead of solely focusing on cashflow when considting a business acquisition, think one step beyond that – who are the customers? If you are looking to acquire a B2B business, the stability and future of those companies should also be considered. Organisations that appear to be thriving can experience a catastrophic downturn if the businesses they sell to go bust.

Check Your Financing

During a recession, financing a business acquisition can be challenging with fewer loans agreed. Bank loans are not your only means of funding a new business purchase though– you can look at other options such as cash purchases, funding through equity, or a leveraged buyout.

However, regardless of how cheap you can buy the business for, only do so if it is financially viable. Purchasing a business during a downturn – whether that’s for that specific business or the wider economy- can be a wise move if you have the cash to spend and are optimistic the market will survive. Just r emember to choose your market carefully and think beyond the business itself to put yourself in the best possible spot for future returns.

Written by
Scott Dylan
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Scott Dylan

I’m Scott Dylan, Fresh Thinking Group Founder and Partner. I oversee the strategic direction of the company, which I created to help, acquire and invest in both distressed and viable companies together with helping businesses improve their business processes and setting strategic directions.