Waikato businesses are riding out the pandemic so far if business buying and selling is anything to go by.
There is no sign of distressed business sales, and instead Waikato brokers are keen to build up their stocks as they see strong demand from buyers, fuelled partly by returnees from overseas.
The makeup of those both buying and selling is largely unchanged from pre-Covid, with no more Aucklanders than usual snapping up Waikato businesses and the bulk of activity being driven locally. Some returning New Zealanders are also getting into the market.
Demand is high and prices are holding, according to both ABC Waikato business partner Scott Laurence and LINK Waikato director and broker Rick Johnson.
Laurence says during the lockdown, the ABC team wondered how the year would develop, and envisaged a number of distressed businesses having to sell.
“And we haven’t listed one of those yet. Whether that’s because of the wage subsidy or whether it’s because of the resilience and the strength and the ability to adapt to business owners, we just haven’t seen those businesses that have fallen over.”
That comes with the rider of the difficult times faced by some tourism operators.
Instead they are seeing high levels of buyer interest from new and existing clients. Laurence says inquiries are coming from existing business owners looking for acquisitions, from people facing redundancy or wanting to leave their corporate job, and some from New Zealanders returning from overseas. Interest from Aucklanders has been at similar levels pre and post Covid.
As high demand holds, the message ABC wants to send potential sellers is that they will get a good price for their business.
Similarly, Johnson sees it as a seller’s market. “The big thing at the moment is that LINK have the most registered buyers on our database that we’ve had in our 20 year history.”
As with ABC, he says some of that comes from redundancies, but Kiwi expats are also fuelling the numbers.
“Interest rates are at a record low, so those that can access money do have the opportunity.
“We’re actually recording multi offers on a number of the businesses that we sell – a higher level of multi offers than we would have experienced previously, so we’re really seeing it as a good time to sell a business at the moment,” Johnson says.
He thinks some potential sellers might be deterred by the prospect of a lower price, due to lockdown affecting their business’s revenues and profitability. But he says if vendors can show volumes have returned to normal, then Covid’s impact doesn’t have to affect the price they can realise for their business.
“Definitely in those manufacturing, service type sectors, the business owners are reporting good levels of trading and, in some cases, stronger than last year.”
Laurence says ABC are also seeing multi offers, and like Johnson notes all-time low interest rates, adding there is uncertainty around the sharemarket and people have realised during Covid-19 there is also some risk in commercial property.
He says typically a business will offer a working owner between 25 percent and 40 percent return on investment.
ABC broker Tony Begbie says businesses with a recurring income are always popular with buyers. That includes subscription-based businesses like gyms, security businesses with alarm subscriptions or IT businesses with software subscriptions. He says people are also always looking for import and distribution businesses. And typically they want to see consistency of revenue and profit, with potential for growth. Also on buyers’ minds is the question of how difficult the business is to learn and understand.
As for those selling, both ABC and LINK are seeing little demographic change pre and post-Covid. Baby boomers were already beginning to exit and that is continuing, but they say vendors come from all age groups.
When it comes to buyers, Johnson says the lockdown acted like a Christmas break. “A number of people, I think, used that period to reflect and say, ‘What do I want to do? I’ve had this role for 10 years, but my passion lies over there, perhaps it’s time to have a look and follow my passion.’ So that’s where I think those buyer demographics are coming from. And we’re not seeing a specific age group. It’s spread across a reasonable range.”
In the area of mergers and acquisitions, Johnson says he is seeing similar levels of activity to pre-Covid. “Waikato businesses are incredibly successful, and always looking for opportunities.”
One of the biggest challenges for potential buyers is access to finance, Johnson says, even those with a reasonable amount of equity. “The banks have been cautious and understandably so, as they look at their own books. There’s been some commentary out of the Reserve Bank, and the government, around wanting banks to actively lend money now.
“The attempts to get banks to loosen up a bit, we’re seeing it very slowly evolving, not as fast as a lot of our buyers would like to see. And I’m sure banks have got valid reasons for that. But it’s certainly something we’d like to see occur.”
As activity stays strong in the region, LINK Waikato are recruiting two new brokers while ABC’s Waikato branch are finalists in November’s real estate awards, for Small Business Broking Team of the Year, and have again been the best performing office within ABC nationally, winning Regional Branch of the year. ABC business partner Greg Dunn says the company is now getting into corporate advisory, business syndication, and has an agri-specialist in the Waikato office.
“Waikato continues to be a prosperous place that people want to do business in, and want to come to.”