The bottom of the market for business sales
Thursday, December 18, 2008/
Job losses are going to bring buyers back to the market. ANDREW KENT
By Andrew Kent
This may well be the low water mark for private business prices in Australia. This is because the balance of supply (businesses looking to sell) and demand (people looking to buy) has begun to swing back from a massive oversupply to a more balanced equation.
Ironically a key component in the change is corporate redundancies, particularly of middle management. This is bringing a new stream of highly qualified and temporarily cashed up individuals into the market.
It is this exact demographic that fuelled the franchise boom in the 1990 recession and the dot-com bust of 2001. What is different this time is that privately owned businesses are far more competitively placed against franchises than they have been historically.
These new entrants are predicted to break the current stand-off that exists in the market at present. Triggered in October by a severe tightening on money supply, and then fed by daily predictions of doom and gloom, many buyers have been sitting on their hands waiting to see just how low prices will go.
This has effectively frozen the market. However, a number of business brokers and others in the industry are predicting that the start of 2009 will see increased activity as there is a growing consensus that any businesses worth having will not get any cheaper.
The BizExchange team has begun work on the December quarter figures, and the initial data appears to support that the bottom of the market has been reached.
As outlined in the September quarter index, there is a price point at which current business owners choose to not sell at all. It was apparent last quarter that the market was nearing the bottom; it appears now that it may have reached it, and we can look forward to a more buoyant 2009.
All of this should be good news to the many baby boomers still looking to sell their business to fund their retirement. It would appear that a significant number of these people have postponed their retirement in the hope that the market would turn. The challenge for them will now be keeping their earnings up in a more difficult market.
Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations.
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