The business sales market is facing a challenge – there’s a gap between supply and demand. They’ve got a queue of buyers, but they’re running out of businesses to sell.

Kiwis are coming home from overseas with cash in their suitcases, and people who’ve been made redundant are looking to become business owners, at the same time as company owners are hunkering down, instead of selling up.

The average sale price for a business has increased 4 per cent year on year.

Ex-pats drive demand

General manager of ABC Business Sales, Chris Small, says: “Returning ex-pats and corporate employees who have lost their jobs are the most common profile of buyers getting in touch with us at the moment.

“It’s clear that these are Covid-created categories, if you want to put it that way, but the positive thing is they are also usually very well-capitalised, well-qualified buyers.”

ABC Business Sales sells more than 35 per cent of small and medium-sized businesses across New Zealand.

In the five months since the first lockdown, 20 per cent more people have registered as interested buyers of businesses, compared to May to September last year.

This is reflected in a boom in traffic to the ABC Business Sales website, says Small.

“We’ve seen a big increase in visitor traffic, averaging 20,000 users per month, up from 17,000 for the same period last year.

“Our data was sourced from signed confidentiality agreements, which have numbered 1100 to 1400 a month over the past five months,” says Small.

So, people are wanting to buy businesses, but owners aren’t selling. Why not?

New business listings with ABC are down more than 30 per cent compared to the same period last year.

“Given the extreme uncertainty businesses are experiencing as a result of Covid, it’s not surprising that many business owners think the current market is not the right time to sell their business,” says Small.

Survival, not selling

“Many business owners are preoccupied with surviving, rather than preparing to sell,” he says.

“They may be thinking that they may not maximise the value of their business in this environment.”

The reason is clear when you understand the process of selling a business.

When a business is valued for a possible sale, the owner must disclose financial documents showing their cashflow, profit and loss statements, and any relevant assets.

When a business has been hit by a lockdown and is recording dramatically reduced profits, the owner naturally won’t see this as an optimal time to open the books to buyers, says Small.

Many owners are preferring to hold off and hope to build up sales and profits before entering a business sales process.

Buyers are waiting

“Our message to business owners is the current market has a lack of businesses for sale, so any good businesses that comes to market are being acquired quickly and at an elevated price.

“Purchasers are happy to accept that Covid has reduced profits for a period of time and will buy the business at a valuation based on profits generated in normal trading conditions.”

He says the imbalance between supply and demand for business sales is following the housing trend, where we’re also are seeing elevated prices.

The surge of buyers comes about from a number of factors, he says:

• Professionals and corporate executives are changing careers or pivoting after Covid-19.

• People who have lost their job during Covid are looking for a secure career or an income source they can control.
• Returning Kiwi ex-pats are looking for career and lifestyle freedom. There’s a lack of employment opportunities with the big corporates, which is making business ownership a very attractive option for this group.
• Aucklanders are relocating to the provinces, freeing up capital and making career changes in their new neighbourhoods.
• Investors are looking for alternatives to the low interest rates offered by the bank. Investing in a business offers a very high yield on any cash investment.

• Buyers are looking at the returns they can get from direct investment into a business, versus the uncertainty of the share market.
  

Some more popular than others

Small says those firms with a limited exposure to the impacts of Covid are in demand.

Businesses with recurring revenue are popular, like IT firms and subscription models like property maintenance businesses.

The rise in home renovations is driving keen interest in building products, manufacturers, and local suppliers to Mitre 10 and Bunnings.

Infrastructure service companies are largely unaffected, driving interest in roading, commercial landscaping and construction.

Businesses doing compliance, building permits, health and safety, food, and healthcare businesses are all sought-after.

Buyers, some of them ex-pats, are also looking for export-focused businesses with a Kiwi spin.

Another boom area is any businesses that allow people to work from home or offer a secondary income for the household.

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