With interest in the flexible workspace market at an all-time high and operators looking for opportunities to grow through acquisition, GKRE director Douglas Green looks at how you can get your flexible workspace centre ready for sale.
Anyone still doubting the growth of the flexible workspace market only has to look at the statistics. In Central London alone, flexible workspace operators took 2.5 million square feet last year, representing 21% of completed office lettings.*
WeWork was responsible for more than half of this number as it continues to fuel its expansion by taking Grade A offices and fitting them out as high-quality flexible workspace. Since 2012, this model has seen it take 2.6 million square feet, making it the largest non-government tenant of office space in London.
This is one way to grow a flexible workspace business but not the only one. Many of our clients are looking to expand by acquiring existing centres, either as freehold or leasehold going concerns or through corporate share acquisitions.
If our Q1 numbers are anything to go on, we expect this to continue throughout the year. This will involve niche and boutique outfits merging to gain critical mass and larger operators swallowing up smaller competitors and consolidating the sector further. Recent deals in the sector include BE Office’s purchase of Headspace Group and Blackstone’s acquisition of a majority stake in The Office Group and we anticipate more to follow in the coming months.
Pictured: UK coworking brand Headspace Group, which was acquired by BE Offices in 2017.
All of which begs the question for operators who want to sell now or in the near future. What should they be doing to prepare to sell their flexible workspace business?
Here are 5 ways to get your flexible workspace centre ready for sale.
1. Be clear about your motive for sale.
There’s always the possibility of receiving “an offer you can’t refuse” but the reasons for selling usually tend to be more prosaic. This could be as simple as the desire to retire, or a lack of confidence in the market in the face of Brexit and the current political uncertainty.
In my experience, one of the biggest drivers is the realisation that what started out as a business with a low barrier to entry that was easy to run at a profit, has become increasingly sophisticated.
As most workspace requires considerable hands-on management and maintenance, the best way to improve margins is to have more space and a bigger operation. A common refrain we hear from sellers is that they have “taken the business as far as it can go”. They no longer feel able to compete with the big boys.
Use this information to understand where your exit is likely to come from and what the buyer is looking for by acquiring your business.
There are two sides to this, micro and macro. Micro refers to your own personal circumstances. Where you are in your life right now and what your next step is. Unless you are being forced to sell by a specific date, the big picture is likely to be more important as that will drive the price you can demand and your negotiating position. You’ll want to keep track of what is happening in both the flexible market and the macro economy.
Interest in the flexible workspace sector has never been higher than it is now. How long that lasts may depend on interest rates, Brexit, the state of the government, and many other factors.
Be patient. Selling a business can be a lengthy process, often longer than you expect. Potential buyers will carry out their due diligence and analyse your company records in exquisite detail.
3. Don’t be too integral to the business.
If you are involved in running the business, make sure it can operate independently of you. It must be able to perform at the same level with or without your hand on the tiller. As the old business adage goes, “Work on your business, not in your business”. Hire people who can run your operation without you leaning over their shoulder and who will continue to do so once you are out of the picture. Without that, you don’t have a business to sell.
4. Have complete data and financial information.
This is so obvious it should go without saying but you would be amazed. Any interested buyer will want to carry out thorough due diligence on your business. This means you must have management accounts, tenancy schedules, details of deposit accounts, copies of all legal titles and leases, VAT records (including evidence of options to tax) to hand. If you do your own thorough due diligence up front your business will not only be more credible, you’ll save yourself a huge amount of time running around once someone shows interest.
5. Be patient, it’s a long process.
Selling a business takes time, usually longer than you expect. The best advice I can give is to get a good accountant and lawyer on board, ideally with experience of doing deals in the sector. This applies whether you are selling shares in a company or the assets. Not only will your professionals protect you (and advise you on the availability of reliefs such as Entrepreneurs’ Relief), they will be able to shield you from what may seem like endless enquiries and demands for information. They, along with any agent acting for you, will also help you negotiate the best deal.
Douglas Green is a director of GKRE, a leading UK specialist workspace agency. To discuss buying or selling a flexible workspace operation, please call me on 020 3427 5678 or email firstname.lastname@example.org.
*Data from Cushman & Wakefield