Overview
The construction industry is a large contributor to the U.K. economy, where it is estimated to employee circa 2.7million people and provide a 6.02% share of GDP. Specifically looking at the housing and repair sector, £2.4 billion was spent in '19 and the most common household development is a loft conversion.
Many building and construction companies tend to chose a niche within the overall sector. As a result we see fragmented parts to the industry, where improvements can be made to increase productivity and business growth. If you are considering to buy a UK business within this sector, continue reading the key areas on m&a we have uncovered to assist conversations when speaking with relevant businesses for sale.
Sector specific categories
Customer Relationships
When looking to buy a UK business, reviewing the business relationships that the current owner has developed will be an area you need to investigate. If managed correctly, this will certainly give a competitive edge within this industry. However, be considerate to the business owner that you are looking at sensitive documentation that is integral to the success of the business that they have developed over many years.
We are looking for clarity not a review into every contact and their details! With this in mind, consider some of the below questions during your m&a process on the client relationships that the business owner has developed:
- How large is the client-base?
- Do they have some kind of CRM / spreadsheet with client data?
- What is the month to month client engagement?
- Are client relationships only transactional?
- Are customers willing to recommend the businesses service?
Strength of Management Team
When reviewing businesses for sale you will want to clarify the management structure, what processes are in place today and consider what improvements can happen if your m&a deal is successful.
Focusing on the companies structure will help highlight where the current owner is having problems and discover areas you might be able to make more efficient. This process can take time depending on the size of the company and will need to be carefully managed, given that the current owner won't want staff to know change is afoot. However, questions you may want to consider as you look to buy a UK business could include:
- Are there any systems or business practices in place?
- What is everyone's skillset in management?
- How do they recruit staff?
- How do they minimise business risk, especially with cash flow?
- What is their structure when quoting for new business?
Contracts Vs Goodwill
When looking at businesses for sale, many entrepreneurs and investors look for the large ticket items within sales team. The perception of winning big contracts is always held in high esteem. However, these deals tend to be heavily scrutinised on margins and have clauses in place; inc. termination dates that can affect the contract. Certainly any legal advice / review would be advised on during your m&a process.
On the other hand, looking at smaller deals where goodwill is more prevalent can be just as lucrative but require sales teams and time management implications. As result, you might want to look at potentially having more of a blend on client work. Either way, when considering to buy a UK business, answers to the following questions will help provide an understanding on what client agreements are in place:
- What termination agreements are in place with large contracts?
- What are the standard terms and conditions the business offers?
- What obligations must be fulfilled within unique agreements?
- How involved is the business owner with these key accounts?
- What does the pipeline look like for new business?
Business efficiency
When reviewing businesses for sale in the Building & Construction sector, the management, best practices and overall efficiency should also become apparent. This is going to be a key area of the m&a process, as an on-looker, to evaluate what they currently do and how to develop new procedures that could save revenue.
This might unfortunately lead to redundancies but on the other hand could expand the businesses capability. Before you buy a UK business, you might want to consider the below questions to guide your process:
- Does the company use any level of technology, if so what?
- Do they use tracking technology like Google analytics?
- What is the client feedback on how efficient the services are?
- What is the company culture to improving efficiency?
- What marketing platforms are utilised to improve new business?
Virtuous circle
Many buy a UK business to leverage existing relationships, developing the current solution and offering a more end-to-end service. However, many business owners don't like to detract away from their core service. During your m&a due diligence identify any weaknesses that could lead to further business opportunities and uncover new solutions.
Ask the same questions internally as well because re-investing in the company through machinery or staffing qualifications, gives a heightened level of self-worth and pride on the services being offered vs competition. When reviewing businesses for sale, remember to have some open-ended questions like the examples below:
- Does the company re-investment in fixed assets?
- Do they offer apprenticeship schemes?
- Is there any customer loyalty scheme in place?
- What service level agreements are in place?
- What add on services are offered when quoting for business?