30 June 2009

Almost three quarters of companies in this year’s Baker Tilly 2009 Owner-Managed Business (OMB) Survey are planning to make an acquisition or establish a joint venture with former competitors within the next three years as the economic downturn delivers some tantalising opportunities to expand. However, more than half of the respondents predict making further redundancies and expect a further drop in sales in the coming year. The stark prediction comes despite the much-hyped “green shoots of recovery” phrase used recently.

The survey of more than 300 board directors of companies with a turnover of £5million to £50million across all industry sectors, reveals:

• 51 per cent predict a drop in staff headcount in the coming year 55 per cent anticipate a drop in operating profits in the coming year
• 38 per cent plan to make an acquisition in the next three years
• 35 per cent plan to establish a joint venture in the next three years
• 21 per cent plan to expand abroad in the next three years

The survey clearly shows it is the larger businesses that are the most optimistic about the future in the next 12 months:

• 46 per cent of businesses with a turnover of £50 million or more expect an increase in sales
• 23 per cent of the smallest firms (turnover under £10 million) are the next bullish by expecting an increase in sales
• The mid-tier respondents, those turning over £21 to £30 million, are the most pessimistic with over half expecting their sales to fall.

Rob Donaldson, Head of M&A and Private Equity at Baker Tilly explained why this is the case: “Large firms are often better capitalised and in a stronger position to cope with a slow down. However, on the flipside, smaller firms can be more nimble and quicker at adapting to changing economic conditions. It is those in the middle that need to consider where they can tighten up and improve efficiency for their ongoing success.

“Funding flexibility in these situations is important. While obtaining finance is clearly difficult there is funding available provided you understand where to look", Donaldson adds. "Between the various government initiatives, the slowly healing banks, and the mountain of Private Equity funding sitting on the sidelines, money can be found."

Shift to Thrift Approach

Additionally the OMB survey reveals that despite reduced sales and waning profits, a “shift to thrift” approach is leading to the emergence of leaner and fitter business models. It will be these businesses that will be in a strong position to take advantage as the markets improve and reverse the current situation which, as the OMB survey confirms, has seen all UK sectors being affected by the downturn, with property, transport, retail and industrial products hit the hardest.

Laurence Longe, National Managing Partner, Baker Tilly, commented: “I would advise all company board members to ensure they have a strong business plan in place, show discipline when executing it and react quickly to any change in circumstances. Whilst there are still very real threats posed by the recession, there are also opportunities to create stronger companies that will be better placed to take advantage of the recovery when the time is right to do so.”