Buyers peck scraps

Business owners are reluctant to sell in this economy. Photo / APN

There are too few businesses for sale to satisfy buyer demand, brokers say.

Reports from Australia indicate that growing numbers of retiring baby boomers may soon cause a glut of listings, but the New Zealand market is firmly in favour of sellers.

"We have buyers chewing our arms off," said David Newport, director of Switch Business. "If we advertise a business for $1 million, we get 50 or 60 people trying to buy it."

Paul Buer, of Link Business Broking, said banks were becoming more flexible in their lending. "And there just aren't a lot of businesses on the market to choose from."

Newport said business owners were being told by their advisers that they should hold off selling until the economy picked up again.

Wayne Cameron, of Company Sales and Acquisitions, agreed. "They are trading at a lower level and can't get the same price they could before the recession. They don't want to crystallise that situation."

But the estimates used to gauge business value were often too pessimistic, Newport said. "Things are certainly down on pre-recessionary times, but not significantly."

People now wanted to hold on to their firms longer than they had expected. "We tend to think that 70 is the new 60," Newport said. "If I look back over the past five years, of the business owners who thought they were retiring, 80 per cent came back wanting to buy something else." Cameron said many older business owners were counting on being able to continue working until the recession was over.

"Baby boomers haven't been the tidal wave of sellers we were told to expect."

But Newport said there could still be a glut of listings in the future if many baby boomers decided they wanted to retire at the same time, or if all the would-be sellers waiting out the recession jumped back into the market at once.

He said there were also concerns that younger generations would not have the equity to pay what some sellers would eventually want.

There were other benefits to buying in a recession. "Any business that is still liquid and trading today is an exceptionally good business. In 2006 or 2007, you didn't know if a business was good or sustainable because everything was making a profit," said Cameron.

Buying a business that had weathered tough times removed one big risk.

Cameron said the difference between the New Zealand and Australian markets was because of their economies.

Australia was only now approaching the kind of downturn that New Zealand experienced in 2008. Business owners were trying to get out before the drop.

Newport was now acting as a buyer's agent because of the lack of listings. "We are having to knock on doors for buyer-led transactions."