Due to various developments, including the start of Trump's presidency, global trade tensions have once again risen sharply. New import tariffs are creating uncertainty in the supply-chain, trade markets and prices worldwide.
How are Dutch SME businesses dealing with this geopolitical uncertainty? And what does this mean for business acquisitions?
In practice, we regularly see businesses facing delayed investment decisions from customers and clients. Decreased revenue and a less positive growth forecast are the result. This not only leads to increased pressure on cash flows, but also has direct consequences if you are preparing a sale or acquisition.
International risk and future performance
In business acquisitions, these uncertainties are causing buyers to look more and more critically at international risk in the perspective of future performance. The emphasis is increasingly on the company's flexibility in a changing market. This translates into additional indemnities related to existing customer contracts, order books and potential claims arising from new trade measures.
Earn-out structures are also increasing in popularity. Here, part of the purchase price is paid out only if certain future results are actually achieved.
For sellers, this means that the sales process becomes more complex and therefore more intensive. Entrepreneurs sell a business need to be better prepared to answer questions about market dependence, customer loyalty and supply risks.
We see more and more discussions taking place about the amount and content of guarantees and which seller is prepared to issue them.
Practical points of interest:
- Assess your commercial dependence. Map out how much revenue depends on countries involved in trade tensions and which countries pose a possible risk in the future. In addition, it can help to leverage multiple trade channels spread across several countries. A spread across multiple markets can strengthen your negotiating position.
- Assess your dependence on suppliers. If your company is heavily dependent on a limited number of suppliers, this can increase the risks. Especially in times of heightened trade tensions. It is important to understand these dependencies and mitigate potential risks, for example by looking at alternative suppliers or making contractual arrangements that provide more certainty.
- Analyze cost and margin pressures. See if you can make agreements with suppliers to better absorb unexpected price increases. After all, future margins will determine an acquisition price for your company. This makes controlling margins essential for a strong position in an acquisition process.
Although geopolitical developments create uncertainty, this is not an insurmountable obstacle to a successful acquisition. If you are thinking about selling your business, find out in time what risks there are and how you can limit them. This often requires flexibility from the company, but offers a strong(er) negotiating position in an acquisition.
With these insights you are better prepared for geopolitical developments and changes in the market. Both in a business acquisition or wish to maximize the value of your company, these are important points of attention.
