Small business sales could hit record high in 2022, brokers say

Despite the Covid-related disruptions, 2022 could be a banner year for SME sales with double-digit growth predicted by brokers.

Small business brokerage firm ABC Business Sales said this year has the potential to be a banner year.
for sales given the pent-up supply of listings expected after two years of owners lacking the confidence to put their businesses up for sale.

“Returning to more normal economic parameters in 2022 will bring more confidence and certainty to sellers and buyers alike,” Chief Executive Chris Small said.

Based on the previous post-lockdown report, most businesses and financial markets rebounded after an extended period of below-normal economic activity due to the lockdowns, he said.

“We expect the same pattern to be evident after this lockdown with pent-up demand fueling increased economic activity this month and beyond,” he said.

“Increased certainty will give investors more confidence to invest in business ownership and sellers will also be more motivated to sell given the increase in travel and leisure options available to them, this is particularly relevant. for baby boomers who own the majority of private New Zealand businesses,” he said.

“With a high likelihood that lockdowns will no longer be part of New Zealand in 2022 and overseas travel will likely be possible by the first quarter of 2022, we believe many business owners will seize the ‘opportunity to sell their businesses.’

He said there could be a number of scenarios for the SME sales market in New Zealand.

• The average business price will experience high double-digit growth in 2022 (15% and 20%).

The year 2021 saw a growth of 15% in the average price of companies. Given that there is now more certainty around the economy and the benefit of open borders over the coming year, along with low interest rates and a number of people looking to become business owners due to changing circumstances, they expected high double-digit growth for the average business price, Small said.

• Buyer interest in SME to continue double-digit growth for FY22 through increased expatriate return as MIQ becomes less of an issue.

The trend of mass resignation is resulting in a large number of workers reassessing their lifestyle and their jobs. Many will look to business ownership to replace their current job/lifestyle.

• Still low interest rates (comparatively) leading to high returns for business ownership.

Record levels of investment liquidity both in New Zealand and overseas continue to seek alternative options outside of bank deposits and real estate. Business ownership is a high yield alternative to banking and real estate investments.

• Large companies will seek to solve labor shortages by acquiring smaller companies with ready-made labour.

Staff shortages will be the biggest constraint for businesses in 2022 and acquiring businesses with existing and experienced staff will be the most effective way to address this issue.

There will be a significant increase in the number of large companies acquiring smaller players and it will be less about acquiring a profitable business and more about acquiring manpower and additional manpower for their existing businesses .

Five business sales categories/sectors expected to perform best for 2022 are
food manufacturing and distribution sectors, the IT services sector, the healthcare services sector, the building and building materials sector and subscription businesses with positive cash flow, Small said.

Completed business sales volumes for the 12 months to October 2021 are up 42% from October 20 and 21% from October 19.

“This is the result of a very strong market where the majority of businesses listed for sale are sold. A number of businesses are sold above the asking price and receive multiple offers before the full marketing campaign is n take place,” he said.

There’s no question we’re in a seller’s market given the dynamics at play and it’s following a very similar trend to the housing market, which shows listings are at historic lows, Small said.

In the 12 months to October, ABC sold 461 ads against a total of 821 ads, which equates to a conversion rate of 57% – an all-time high given that conversion rates have historically been around 35 and 40%.

The high conversion rate reiterates the trend that we are in a seller’s market with most
companies that come to market are sold, he said.

Bruce Cattell, managing director of Auckland-based commercial brokerage, said recent changes involving the government’s CCCFA Act had had little effect on banks’ appetite for business loans, which is a positive for commercial buyers. .

“However, banks are more transaction fussy 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 must ensure they are well prepared and educated when seeking bank financing for a business acquisition,” Cattell said.

He told the Herald that sectors like hospitality and tourism continue to face difficult times because of the pandemic, but the general mood seems to be that there is light at the end of the tunnel. Even in today’s market, quality accommodation and hospitality companies continue to change hands at excellent values ​​with good buyers in the market.

“In particular, buyer demand for businesses in the service, manufacturing and import distribution sectors remains very strong,” he said.

“The Covid-19 pandemic has not stopped or impacted the number of baby boomers looking to get out, sell and enjoy their well-deserved retirement. Over the next few years, we could experience an extremely busy and active market in due to the influx of buyers and sellers looking to close deals.

“Business owners are recognizing more than ever the importance of timing when looking to sell, ensuring they reap the potential tax-free profits from a successful sale. Buyers take stock and recognize the benefits that business ownership can bring to them and their families, including taking control of their own destiny and building capital as well as the other benefits that business owners provide. »

Following the government’s recent announcement confirming a timetable around the reopening of the country’s borders this year, an influx of buyers is expected.

“More of our skilled population lives abroad than in any other OECD country.

“There could be a significant number of qualified, cashed-in professionals in the market looking for work. Many of them will aspire to invest in established businesses or buy themselves jobs when they return,” said Cattell.