Business sales tsunami
Thursday, April 12, 2007/
The rush of business sales is causing huge changes. Prices are falling and accountants and online business sellers are muscling in to steal business from brokers. In all the upheaval, how do you get top dollar? MIKE PRESTON reports.
By Mike Preston
Planning to sell your business? The landscape is changing fast. Prices for small businesses are plummeting as retiring baby boomers and the June 30 cut-off to put $1 million into superannuation trigger a flood of businesses on to the market. At the same time, accountants and online business sellers have rushed in to try and grab a slice of the action, competing head-to-head with traditional business brokers.
These changes mean getting top dollar for your business is an increasingly complex and difficult task. Business owners need to be more strategic when planning their exit, understanding how the valuation process works – and knowing who is the best service provider to use.
The market’s changing
The business sale market at the SME end is changing, and not in a way that business owners looking to exit will welcome.
As SmartCompany revealed on March 29, the massive growth of funds available to private equity funds is sucking demand out of the SME market as fund managers search for the big deals that will deliver them the fat fees.
This means many businesses below the $50 million annual revenue mark are missing out on higher sale prices the private equity bonanza was supposed to bring.
On the supply side, increasing numbers of baby boomers reaching retirement are starting to generate a steadily increasing flow of businesses on to the market. At the same time, the Federal Government’s 2006 superannuation changes have created a June 30 deadline for SME owners hoping to beef up their retirement stash with a million-dollar contribution.
Hayes Knight senior partner Greg Hayes says these trends are being exacerbated by a structural shift in the market. “There is what you might call a lifecycle of business as people buy, sell and buy again, and at the moment that is just feeding businesses on to the market and really giving buyers the upper hand.”
Accountants muscle in
The upheaval in the business sales market has also prompted a rush of accounting firms into providing sales services, which had been the domain of business brokers. The accountants are motivated by the prospect of offering new services to their clients and the additional revenue that brings.
Hayes says the succession issues faced by many baby boomers selling their businesses has given accounting firms a new way into the sales service space.
“These succession issues have led accountants to get far more involved in sales, without a doubt. They are often issues that need to be dealt with sensitively. It’s the sort of thing they [business owners] will only do once in their life so it’s natural to go to someone who they have a relationship with.”
Wayne Marlow, a director of business brokers Blount Osborne Walsh, has a slightly more cynical view of what is behind the move.
“It’s definitely a trend at the moment. There’s good money in it, especially at the $2–10 million mid-tier, accountants are chasing the work as a way of making money on top of their core business,” Marlow says. “Its all about value-add: they want to add to their other services and many promote themselves as being deal doers but they’re not.”
New competition from online
The profits to be gained in a swollen business sales market have also prompted a wave of new ventures seeking to provide services online.
BizExchange, Seek Commercial and realcommercial.com.au are just a few of the websites battling in the last few months to become the dominant online marketplace for businesses, while sites such as BStar are providing services such as online valuation calculators.
The “baby boomer bubble” was a key factor behind the establishment of BizExchange, director Andrew Kent says.
Kent says BizExchange doesn’t seek to compete directly with accountants and business brokers, although he acknowledges that some business sellers do list directly on the site.
“It tends to be owners of smaller businesses who list directly, and that’s really reflective of what the broker or the adviser market is interested in – the smaller end. It’s not always a viable proposition for a lot of these guys so there is a cut-off point there.”
Paul de Rome, a director of business broker Jamiesons, says while BizExchange is one of the good sites out there, business owners thinking of selling online need to be wary.
“There is a proliferation of websites targeting people selling their business, but there’s also a lot of work involved and experience needed in handling a business sale and especially in determining a pricing for a business. To just do it yourself and keep running your business, it would be hard to not take your eye off the ball,” de Rome says.
Accountant or business broker?
Business brokers claim they are closer to the market than accountants and so better able to give a realistic assessment of the value of a business.
But more importantly, says business broker Wayne Marlow, brokers are motivated by heavily commission-based fee structures to strive to sell their clients’ businesses.
“The difference between accountants and us is that we know how to do a deal; the reality is someone who’s paid by the hour doesn’t have a finish line,” Marlow says. “Brokers get paid when they sell the business, and if we don’t deliver, we charge nothing. But accountants will always want at last a retainer and often a per-hour rate.”
But the fee-for-service basis that accountants generally use can work in favour of clients, according to Grant Thornton partner Peter Carroll.
“Brokers do work on a success fee and if it is a hard to sell business they can run out of puff. We want to have relationships with clients over the long term and so that not only provides a motivation but it means we are conscious of achieving outcomes that work for them,” Carroll says.
He says the business owners often go to accountants to sell their businesses because of long-standing relationships and the “one-stop shop” they can provide. “Accountants can handle the structure of the transaction and tax advice as well as the sale of the business itself, and that is attractive to some clients.”
In the end, however, brokers and accountants both acknowledge that the most important thing for a prospective business seller to do is find someone with experience in their sector and track record of making sales at good prices.
Hayes Knight’s Greg Hayes says business owners thinking of selling need to assess the different strengths of accountants and brokers.
“Understand what you want, and if you hear of someone with specialist skills in the space your in, they are probably the best – whether they are an accountant or a business broker. It is really horses for courses.
“Some accountants are very good in this space; others who aren’t very experienced and would purely deal with it to help a client may not be the best person. Equally there are brokers who know their markets inside out while for other, it’s just another business to put it on their website.”