According to recent figures from the ONS UK Economic Accounts over £334billion is currently being hoarded by British businesses. This staggering amount of money is effectively laying dormant in the bank accounts of major corporations, rather than being invested in British businesses and SMEs.
There are a number of reasons for this, but perhaps the biggest one is that investing in other British businesses isn't as straightforward as it once was. Economic uncertainty over the past few years has resulted in major businesses stockpiling cash rather than investing in other businesses, creating a mountain of money that has been completely untapped.
Another important reason that British businesses have been reluctant to invest in other domestic businesses is because of the competition from foreign buyers. The fact is that British businesses are a very attractive proposition to foreign investors at the moment, especially with recent encouraging signs of growth and a Capital Gains Tax of just 10%. Many international companies can simply offer more money at the point of sale than their British counterparts, who are effectively being gazumped.
When you consider the amount of foreign investment in British companies in recent years, from Kraft buying Cadbury to the Ontario Teachers' pension fund buying Burton's Biscuits more recently, there is no doubt there has been a surge of interest in British Business. However, while there have been domestic attempts to buy UK businesses with the surplus cash, British investors have largely been losing out.
As an expert dealing with companies and grooming them for sale, I have found it fascinating to watch this unfold and I believe it has created a strong sellers market if you are someone looking to sell your business.
When I sold Cardpoint for £170million in 2006, I did so because I received a fantastic offer for the business. The company initially floated on the stock market for 43 pence per share, and I eventually accepted an offer for the business of one pound per share. In other words, I had more than doubled my money on the original valuation, and it was largely down to the amount of preparation I had put into getting the company ready for sale.
The key lesson I have learned from selling Cardpoint, amongst other businesses, is that preparation is vital when it comes to selling a company. If you go into the process totally underprepared it will take a very long time to get any traction and you will struggle to identify a buyer. In short, the more preparation that goes into selling a business, the more likely you are to get the best value for your business.
In today's market, one trend I've really noticed is that the very hard-line foreign companies looking to buy in the UK have really driven prices up, often at the expense of British investors who cannot necessarily compete. On the other hand, the fact that there are these surplus billions just sitting dormant means that sellers will be in a strong position to negotiate with British businesses, should they be looking to invest.
It will be very interesting to see how this plays out during 2014. The market will require more acquisitions of the cash-rich companies as organic growth is still hard to achieve meaningfully. This will result in more mergers and acquisitions activity and more SMEs being able to exit for an appropriate price, provided they are adequately prepared and ensure that the process is competitive - a number of buyers bidding-. Timing is also important, and it is important for companies to act fast to avoid any potential changes to Capital Gains Tax after the May 2015 election.