ABC Business Sales released its fourth Quarterly SME Intelligence Report this week and it reveals many interesting trends for the business sales market.
ABC Business Sales is the first organisation to share statistics related to business sales and price.
ABC believes it is important to further educate New Zealanders on business ownership so they can provide investment options outside of property and listed shares.
The report notes the business sales market is continuing to experience a significant gap between supply and demand and this has remained the case in the last six months.
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Demand data points, such as signed confidentiality agreements by prospective buyers and website traffic patterns, are showing significant increases (up to 25 per cent) compared to the same period last year.
Supply data points, such as new businesses listed for sale, are showing material decreases (10-15 per cent) both at a total market level and ABC level.
The excess demand and reduced supply characteristics of the current market have resulted in elevated prices for businesses in all industries.
ABC’s recent report includes numbers up to October 2021 and hence reflects only two months of the current lockdown, so the results have not been heavily skewed.
"History has shown us that the majority of businesses and financial markets bounce back following a sustained period of below normal economic activity driven by lockdowns. We are expecting the same pattern to be evident post this lockdown with pent-up demand fuelling increased economic activity in December 2021 and beyond.
“With a high probability of lockdowns no longer being part of the NZ in 2022 and overseas travel likely to be possible by the first quarter of 2022 we believe many business owners will take the opportunity to sell their businesses,” says ABC managing director Chris Small.
Increased certainty will provide investors more confidence to invest in business ownership and vendors will have more motivation to sell given the increased travel & leisure options available to them, this is particularly relevant to the Boomers who currently own the majority of NZ’s privately owned businesses.
“We believe 2022 has the potential to be a record year for business sales given an element of pent-up supply caused by business owners who weren’t comfortable selling their business in a COVID environment.
"The bounce back to more normal economic settings in 2022 will provide more confidence and certainty to both sellers and purchasers and in our view result in more transactions occurring,” says Small.
As the graph shows, completed business sales volumes for 12 months to October 2021 are up 42 per cent compared to October 2020 and 21 per cent compared to October 2019.
This is the result of a very strong market where the majority of businesses listed for sale are being sold.
A number of businesses are being sold at above asking price and getting multiple offers before the full marketing campaign takes place.
"There is no doubt we are currently in a “Seller Market” given the dynamics at play and it is following very similar trend to the housing market which shows listings are at all-time lows.
"For the twelve months to October 2021, ABC sold 461 vs total listings of 821 equating to a conversion rate of 57 per cent. This is a record rate given historically conversion rates have been in the region of 35-40 per cent. The high conversion rate, reiterates the trend we are in a seller’s market with the majority of businesses coming to market being sold."
Overall, the average price for SME businesses ($0-$5m) excluding Hospitality has increased by 15 per cent for the 12 months to October 2021.
The price increase has been driven by a buoyant market with demand exceeding supply for quality businesses and forcing purchasers to pay higher prices.
A number of other data sources, such as the recent PWC mergers and acquisitions report, endorse this trend of business assets increasing in value and are all driven by the same factors; increased buyer demand chasing a scarcity in supply of quality businesses.
The increased demand is driven by investors chasing higher yields and an abundance of capital in the hands of retail and wholesale investors.
The data set used for the average price calculations are all the transactions completed by the ABC Group in the $0-$5m price range. It should be noted the ABC Group has approximately 35-40 per cent market share of this segment and hence this data is regarded as accurate and meaningful.
The proportion of NZ businesses in the $0-$5m segment is approximately 89 per cent of all businesses in New Zealand. Stats NZ reports 189,384 entities have one employee or more and 167,790 of these entities have between 1 - 19 employees; the majority of the businesses with 1-19 employees would be valued between $0-$5m.
ABC’s new report clearly shows the business sales market has unprecedented demand fueled by a number of key drivers and the supply of quality businesses is below its historical average.
Contact: Chris Small, 0800 180 222, email [email protected]
- Article supplied by ABC
