Overview
The service industry is the largest sector in the U.K. that accounts for 80% of the total economic output, which employs over 5.6 million people. Financial services is a particularly important sector to the industry, where London is the second-largest financial centre in the world. However, human health and social work activities has more recently been the largest contributor to this sector, which grew by 4.5% in 2021.
When consider to buy a uk company many CEOs and investors look to the Service sector, as a way to enhance their core services or further invest in their overall operation structure. Providing an element of cost saving through economies of scale or being a platform for regulatory activities, service based companies can have a positive impact on a businesses m&a strategy and growth plans. However, when targeting a small business for sale in this field, the below topics are worth considering so you acquire the right company.
SECTOR SPECIFIC CATEGORIES
Intangible assets
A service based company will operate very differently in comparison to a more traditional product based business. Initial valuations can be difficult to accurately calculate for a service company because there are a number of intangible assets. As a result, it is important to understand whether this venture will meet your business objectives before progressing.
Many m&a deals in this space tend to be congeneric, businesses within the same or similar sectors acquiring each other. However, there are examples whereby product based companies have acquired a service company for diversification and leveraged them for operational savings. If you are to buy a uk company that is service based, you may want to consider the below questions before carrying out further due diligence:
- What is the CIV of the company Vs the sector?
- What milestones does the small business for sale track?
- Do you feel comfortable in offering an intangible service?
- Does it create operational savings and value-added services?
- Is there a strategy to manage and mitigate any risk?
Scalability
A service based company can easily fall into the trap of just selling time. Naturally this is not scalable and can lead to many service companies stagnating! As a result, when you look to buy a uk company, understand the core operating model so you have a clear insight as to whether automation could help.
On a macro level your market research should ascertain whether the company has scalable potential, via any level of exclusivity. Some businesses might have product or regional agreement in place, which could be affecting the overall customer reach and revenue growth. When considering a small business for sale, the below questions might help the research process:
- Can you turn the business into franchise?
- How will an m&a deal impact the business once the current owner leaves?
- Does the business have exclusivity in any way?
- Has there been any recent R&D investment?
- Is there any process that can automated?
Analytics
Following on from the points raised within the competitors section. When you look to buy a uk company, the niche market a business targets and the USP being offered will be vital to determine. Analytics will be a driver behind this m&a decision making process, whereby you will need to look at various metric points from both a quantitative vs qualitative prospective.
Outlining volume and value, market size, buy patterns, barriers to entry for customers, testimonials, common word trends, characteristics of competitors or even the wider economic push and pull factors, could all be topics of interest when collating data. However, make sure to gather relevant data where all questions remain the same throughout. Before buying a small business for sale , the below questions could be worth considering so you gather different types of data:
- What is the ratio of new Vs. existing clients?
- What is the feedback and testimonials from clients?
- What does the customer experience / journey look like?
- What are the overall market statistics the service targets?
- How long is the average sale? (E.g. Enquiry to winning business).
Competitors
During the market research for scalability, this work will inevitably provide a clear indication on the competitive landscape and how saturated it might be. Strategically plotting the differentiators on each provider, will help discover any potential USP and new m&a opportunities. Furthermore, clarifying the client base and whether they operate a business to customer or business to business sales model, will show how and who they currently prospect for new sales. Remember before you buy a uk company ask yourself; "How can my network of contacts benefit from service?"
Finally, make sure there are suitable deal protection plans in place. You wouldn't want the current boss becoming a new competitor. As you progress through this process, here are some questions to consider when acquiring a small business for sale:
- What non-compete agreements are in place?
- Who are the current competitors?
- Is the customer base B2C or B2B?
- How saturated is the current sector?
- What products does the sector offer Vs. the target business?
Regulations
Within many service industries, regulation have a significant impact to their overall solution. With this in mind, before you buy a uk company, make sure that you are fully aware of the regulatory bodies involved and what they require from the business owner. Secondly, make sure to check the status of the target business and have implemented adequate audits. This can quickly lead to areas of expertise and professional advice maybe required.
Separately, qualifications may also be needed by employees depending on their job title and whether they are providing advice to customers. During a level of due diligence, ensure that you are aware of all qualification statuses and whether they have kept up any relevant professional development. This could also be a way, if you acquire the company, to employ apprentices and train them to get professional status. Either way, the below questions you may want to utilise before a m&a deal is struck on a small business for sale:
- Who is the governing body of the industry ?
- What is current status of the business with the governing body?
- What regulations are in place for the business owner?
- Which employees are qualified within the target company?
- How long is the training period for someone to become qualified?