ABC Business Sales has released its fifth Market Intelligence Report since October 2020 and, for the first time, has witnessed new market trends. The business sales market is no longer continuing to experience a significant gap between supply and demand.
Demand data points, such as signed confidentiality agreements by prospective buyers, have shown a small decline compared to the same period last year.
Supply data points, such as new businesses listed for sale, have shown a small increase both at a total market level (1%) and ABC level (7%).
Market conditions historically showed excess demand and reduced supply. The new data is showing early signs of this trend being reversed with more businesses coming to market and demand trends declining year on year.
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Average business prices have continued to increase for the latest data period, but ABC expects this to flatten with supply now starting to match demand, and external factors — such as increasing interest rates — keeping asset prices flat for the remainder of 2022.
ABC’s report includes data up to March 2022 which has been well documented by various third-party reports to be a record year for merger and acquistion activity in New Zealand.
Will these record levels of business sales activity continue for 2022-23? ABC has no early warning signs to suggest a material drop-off. The current data on supply and demand drivers confirms we no longer have a mismatch (demand exceeding supply) and there will be a more evenly balanced market between sellers and buyers, ie less of a sellers’ market.
With a high probability of lockdowns no longer being part of New Zealand’s Covid response in 2022-23, and overseas travel now possible, ABC believes many business owners will take the opportunity to divest their businesses.
Increased certainty will provide investors more confidence to invest in business ownership and vendors will have more motivation to sell, given the increased travel and leisure options available to them. This is particularly relevant to the Boomers who own the majority of NZ’s privately-owned businesses.
ABC believes 2022-23 has the potential to be another record year for business sales given an element of pent-up supply caused by business owners who weren’t comfortable selling in a Covid environment.
The bounce-back to more normal economic settings in 2022-23 will provide more confidence and certainty to sellers and purchasers and, in ABC’s view, result in more transactions.
The graph shows completed business sales volumes for 12 months to March 2022 are up 7% compared to March 2021 and 9% compared to March 2020.
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 have been in a “seller’s market”.
For the 12 months to March 2022, ABC sold 405 of 786 total listings or 52%. This is a record rate given historical conversion rates in the region of 35-40%.
What will be interesting to gauge is if these high conversion rates continue for the 2022-23 year with recent data suggesting new businesses listed for sale are increasing and demand statistics are decreasing. If this scenario continues, we may be in the early stages of moving to a buyer’s market.
Overall, the average price for SME businesses ($0-$5m) excluding hospitality has increased 15% for the 12 months to March 2022, driven by a buoyant market forcing purchasers to pay higher prices.
The average price for hospitality businesses ($0-$5m) has seen a 72% increase for the 12 months to March 2022.
Covid and the initial lockdowns caused adverse effects which formed part of the March 2021 numbers but the data clearly shows a bounce-back.
ABC believes this is the direct result of hospitality prices coming off a very low base price caused by the lockdowns and the March 2022 average of $304,994 is more reflective of a normal market. It believes these prices will be sustained.
“The key takeaway for business owners thinking of exiting their business in the next 12 months is there will be more businesses coming to market and fewer buyers over the short term.
“Optimising a sale process will require more skill and expertise than ever before,” says ABC managing director Chris Small.
Contact: ABC, ph 0800 180 222 or email [email protected]
— Article supplied by ABC Business Sales
