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Stable businesses must be incentivised to pick up failing competitors

Tens of thousands of more secure businesses must be encouraged to buy distressed enterprises to give the economy a boost as it faces the economic fallout from the pandemic, according to Dyke Yaxley's Mark Bramall.

Supported by research from The Corporate Finance Network, of which Dyke Yaxley are a member firm, Mark said: "I believe stable firms can play a role in helping the economy by making acquisitions. The issue is that we are not an acquisitive nation. SMEs rarely buy other businesses.

"There were fewer than 5,000 deals across the UK in the past three years involving SMEs (small and medium-sized enterprises) with less than £25m turnover1. The natural course of business will not help this dire situation.  We need Government to put in a series of incentives to really encourage mergers and acquisitions, so struggling business owners do not just shut down their business, and make their workforce redundant. “

He added: "We need to do something which encourages maybe 250,000 businesses to make an acquisition of a failing business in their sector, or even a different sector, to diversify.”

The Corporate Finance Network reported last week that 18% of businesses were likely or probably going to fail2 and this helped convince the Chancellor an overhaul was required of the support offered.

They have now proposed to Treasury that Local Enterprise Partnerships should be given more money for companies willing to safeguard jobs, and a tax incentive should be put in place with HMRC to help reduce the risk of buying a distressed business, which will then need considerable work and skill to be turned around.

The founder, Kirsty McGregor said: "I have already sourced providers for the operational logistics - a business sales database to match these companies, and accountants and lawyers ready to run a very streamlined deal process. It could be ready to launch in a week."

One of the accountancy firms in Suffolk was quoted as saying "My initial thoughts are that it is going to be carnage for SMEs if businesses can’t get back working within six months, even with the Government support", I can’t really understand why an instant boom is predicted once everything returns to normal though.

"All the deferred debt and loan payments, new credit payments, higher taxes and unemployment must surely reduce disposable incomes.”

The Chancellor recently announced an "unprecedented" package of support for workers and businesses to help them cope with the coronavirus pandemic.  Support for businesses already announced by the Chancellor includes providing £330 billion in business loans and guarantees, paying 80% of the wages of furloughed workers for three months, VAT and tax deferrals, introducing cash grants of up to £25,000 for small business and covering the cost of statutory sick pay.  But concern is that these aren’t sufficient and are not meeting the SME economy’s needs, who are reluctant to take on more debt at this uncertain time.

1 source: Experian between 1 March 2017 and 25 March 2020, companies with <£6.5m turnover made 4312 acquisitions, and companies £6.5-£25m turnover made 277 acquisitions, where deal value was >£0.5m

2https://www.bbc.co.uk/news/business-52114414#

Mark Bramall, Director