ABC Business Sales founder and CEO Steve Smith and its managing director, Chris Small. Photo / Supplied
Despite Covid-related disruptions, 2022 could be a record year for SME business sales with double-digit growth predicted by brokers.
SME brokerage ABC Business Sales reported that this year had potential to be a record year for sales given the pent-up supply of listings expected after two years of owners lacking the confidence to list their businesses for sale.
"The bounce-back to more normal economic settings in 2022 will provide more confidence and certainty to sellers and purchasers," said managing director Chris Small.
Based on the previous post-lockdown report, most businesses and financial markets bounced back after a sustained period of below normal economic activity driven by lockdowns, he said.
"We are expecting the same pattern to be evident following this lockdown with pent-up demand fuelling increased economic activity this month and beyond," he said.
"Increased certainty will provide investors more confidence to invest in business ownership and vendors will also have more motivation to sell given the increased travel and leisure options available to them, this is particularly relevant to the baby boomers who own the majority of NZ's privately owned businesses," he said.
"With a high probability of lockdowns no longer being part of NZ in 2022 and overseas travel likely to be possible by the first quarter of 2022, we think many business owners will take the opportunity to sell their businesses."
He said there could be a number of scenarios for the SME business sales market in New Zealand.
• The average business price to experience high double-digit growth in 2022 (15 per cent and 20 per cent).
Full-year 2021 experienced 15 per cent growth on the average business price. Given there is now more certainty around the economy plus the upside of borders opening up in the coming year, alongside low interest rates and a number of people looking to enter business ownership because of changing circumstances, they were predicting high double-digit growth for the average business price, Small said.
• Buyer interest in SME businesses to continue its double-digit growth for FY22 on the back of increased returning ex-pats when MIQ becomes less of an issue.
The trend of the big resignation is resulting in high volumes of workers reassessing their lifestyles and jobs. Many will turn to business ownership as a replacement for their current work/lifestyle.
• Continued low interest rates (comparatively) resulting in elevated returns for business ownership.
Record levels of investment cash both within NZ and overseas continue to look for alternative options outside of bank deposits and property. Business ownership is a high yielding alternative to bank and property investments.
• Big corporates will look to solve labour shortages via acquiring smaller companies that come with a ready-made workforce.
Staff shortages will be the biggest constraint on businesses in 2022 and acquiring businesses with existing and experienced staff will be the most efficient way to remedy this problem.
There will be a material increase in big corporates acquiring smaller players and it will be less about acquiring a profitable business and more about acquiring a workforce and extra labour for their existing businesses.
Five business sales categories/sectors expected to be top performers for 2022 are
the food manufacturing and distribution sectors, IT service sector, healthcare services sector, building and construction supplies sector and subscription businesses with positive cashflows, Small said.
Completed business sales volumes for 12 months to October 2021 are up 42 per cent compared to October 20 and up 21 per cent compared to October-19.
"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," he said.
There is no doubt we are in a seller's market given the dynamics at play and it is following a very similar trend to the housing market, which shows listings are at all-time lows, Small said.
For the 12 months to October, ABC sold 461 vs total listings of 821 equating to a conversion rate of 57 per cent - a record rate given historically conversion rates have been in the region of 35 and 40 per cent.
The high conversion rate reiterates the trend that we are in a seller's market with most
businesses coming to the market being sold, he said.
Auckland-based business brokerage chief executive Bruce Cattell said the recent changes involving the government's CCCFA Act have had little effect on the banks' appetite for business lending, which is positive for business buyers.
"However, banks are pickier over deals and generally require more detailed information as part of their financing process. More than ever, sellers need to invest quality time in preparing their business for sale and buyers need to ensure they are well prepared and educated when looking to secure funding from the bank for a business acquisition," Cattell said.
He told the Herald sectors like hospitality and tourism continue to go through some challenging times because of the pandemic, but the general mood appears to be that there is light at the end of the tunnel. Even in the current market, quality accommodation and hospitality businesses continue to change hands at excellent values with good buyers in the market.
"In particular, buyer demand for businesses in the services, manufacturing and import distribution sector remains very strong," he said.
"The Covid-19 pandemic hasn't stopped or impacted the number of baby boomers looking to exit, sell up and enjoy their well-earned retirement. In the next few years, we could experience an extremely busy and active market as a result of the influx of buyers and sellers looking to transact deals.
"Business owners recognise more than ever the importance of timing when looking to sell, ensuring they reap the potential tax-free rewards from a successful sale. Buyers are taking stock and acknowledging the benefits that business ownership can provide them and their family, including taking control of their own destiny and building equity along with the other benefits that business owners provide."
As a result of the Government's recent announcement confirming a time frame around the reopening of the country's borders this year, it's expected an influx of buyers.
"More of our skilled population live offshore than in any other OECD country.
"There could be a significant number of skilled, cashed-up professionals in the market seeking employment. Many of these will aspire to invest in established businesses or buy themselves a job on their return," Cattell said.