New research suggests that four-in-ten entrepreneurs across Europe do not know the value of their company. The study by Marktlink found that that figure was better in the UK, but still saw one-third of enterprises hit the same blind-spot.

The last two years have seen the European merger and acquisitions market fall off a proverbial cliff. Having enjoyed a record year in 2021, volume plummeted to its lowest level since 2009, after pressures from the global economy saw investors favour caution in their dealings.

However, when they were willing to spend, they spent big – with the average deal value rising by $25 million on 2022’s levels. And a number of other factors left experts predicting the market was about to turn a corner in 2024 – presenting the leaders of small and mid-sized enterprises with new opportunities. To make the most of those, however, owners must be well-informed – as highlighted by a new study from European deals advisory firm Marktlink.

Source: Marktlink

Jonny Parkinson, managing partner at Marktlink’s Manchester office, commented, “Having an accurate business valuation is key for business owners and step one if they’re considering a sale. With 2024 expected to bring a much brighter outlook for M&A activity, SME leaders need to be aware of their business value to be able to take advantage of an increase in opportunities and ensure they are ‘exit ready’.”

At present, many owners are a long way away from that, though. By Marktlink’s reckoning, 40% of European SME owners don’t know how much their business is worth. This is a risk factor for entrepreneurs who want to grow: potential investors set great store by a detailed valuation. When plans for a sustainable future are rolled out, a sound valuation is again indispensable.

Marktlink surveyed 1,066 business owners across the UK, Netherlands, Belgium, Denmark, and the Nordics. And while the 224 respondents from the UK seemed to have a slightly better handle on things, 33% still admitted they did not know how much their business was worth. Meanwhile, 32% added they felt their business was currently undervalued – again diminishing their chances with new investors.

Parkinson added, “This is equally important for owners who may not be considering a sale immediately… Even if a sale isn’t a consideration for the next five years or more, working with an adviser to establish a current valuation and a plan to reach a desired valuation will help to close the expectation gap and allow shareholders to maximise value when they decide to exit.”

This will be especially important, as with market conditions reportedly set to improve, 75% of SME leaders expect the value of their business to increase in the next 12 months. When compared to the European average of 72%, UK SMEs are most optimistic about growth in valuations as they come out of the other side of a tumultuous year – but they will struggle to capitalise on this development if they cannot accurately measure the worth of their firm.