The sole focus of LINK's Corporate division is businesses priced from $1 million to $50 million. Our team of senior brokers is highly experienced, each with many years experience. They know the market and will guide you through the stages involved in finding a suitable business for you.
The market in New Zealand has been very buoyant over the last few years with strong demand from buyers resulting in a shortage of good businesses. Frequently business owners ask for their business to be sold with the utmost confidentiality resulting in many successful sales being concluded without the business going on the open market. If advertised we normally receive dozens of calls from one advertisement, an indication of the strength of the market.
Qualify Yourself
Before beginning the process of searching for a business you should take time to qualify yourself. If you have ever owned a business you will know what this means. It will assist not only you but also the broker in identifying what type of business would be suitable for you.
Are you prepared financially, physically and mentally to purchase a business?
Take inventory of what you can add to a business such as experience, knowledge, skills, ideas and enthusiasm. It is also important to identify what level of financial investment you want to make and let your broker know the specifics, such as how much cash you might have available and how much you could borrow. This will give your broker a clearer perspective in selecting a range of businesses for you to choose from.
Register for New Listings
LINK offers a unique service where you can register in our database to receive priority advice on new listings. You can register online (click on Register) or you can contact one of our A&D brokers who will discuss what current businesses are available and help you to register in our database.
Once registered you will receive priority notification of any new business within your selected criteria. Initial advice will be of a general nature due to confidentiality restraints and will not identify the business. If suitable then further information will be supplied upon signing a confidentially agreement.
LINK’s Expertise
LINK's Corporate division operates within strict professional and ethical standards. Most information requested on a business is confidential and commercially sensitive requiring business owners to carefully guard who receives information and they will be limited to qualified genuine buyers. For this reason you will be required to sign a Confidentiality Agreement (CA) after being qualified to ascertain your suitability to acquire the business.
An Information Memorandum (IM) will be available summarizing the business opportunity, financial information and an outline of the sale process. This document has been prepared from information supplied and in conjunction with the business owner. After your preliminary questions have been answered the next step is for the broker to prepare an offer to purchase including a variety of special conditions you require to be fulfilled before concluding the purchase. This will include a “Due Diligence” clause.
There are many commercially sensitive aspects of a business that would be unwise for an owner to disclose prior to receiving a written offer to purchase. The due diligence process is for the buyer to receive this more sensitive information under the provisions of the agreement. This process ensures commercially sensitive information is protected and supplied only after an agreement is reached on price and terms between both parties.
The documentation we prepare has been used in numerous acquisition and divestment transactions and will be prepared to reflect the specific nature of the business encompassing the necessary clauses required to protect the interests of both parties.
After completing hundreds of acquisition and divestment agreements, LINK's experience in this area of specialisation has resulted in it having a solid reputation as the preferred specialists in the $1m to $15m market. LINK is used by both business owners and professionals wanting a high quality professional service. There are many questions that may arise as you proceed in your acquisition. Following is a list of questions to assist you.
FAQ's
Will LINK approach specific businesses on my behalf to ascertain if they are for sale?
How do I receive priority advance notice on new listings?
How are businesses priced?
How much equity do I need and how much can I borrow?
What return can I expect for my investment?
Can I use independent advisers when purchasing a business?
Q. Will LINK approach specific businesses on my behalf to ascertain if they are for sale?
A. We have individuals and companies approach us when they want to acquire a business they are aware of or are wanting to purchase a business in a specific industry. Business owners are more receptive to an approach by an independent source and will discuss more openly with us their future plans and views on selling. We can also advise them on many issues in the process requiring clarification such as price, protecting commercially sensitive information and the process involved in selling. Being a third party with vast experience in business sales LINK can facilitate a possible acquisition more effectively.
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Q. How do I receive priority notice on new listings?
A. You can register online or phone one of our senior brokers to discuss your acquisition plans and they will help you to register in our database. We have a large number of buyers contacting us looking for a business, in fact far more than we have businesses to sell. Therefore it is to your advantage to qualify yourself. This will enable us to be of better service to you by having the required information to assist us in finding the right business for you.
The type of information that assists us is:
- A brief overview of your background, such as:
a Previous businesses owned
b Type of business preferred
c Business objectives
d Industry experience
e Any qualifications. i.e. mechanical, finance, sales, marketing etc.
- Do you want to work in the business, if so how many hours?
- Will the business need to employ any other family members?
- What income do you need to earn?
- How much do you have to invest? Is cash available before borrowings, and how much can you borrow on assets other than the business?
- Location. Any specific requirements?
- Any businesses you have looked at and reasons why you did not buy?
- What are you currently doing?
- When do you want to buy?
- How long have you been looking?
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Q. How are businesses priced?
A. A purchaser is buying a business for the profit it will generate and the return they will get on the funds invested into the business. Ultimately the value of a business depends on the needs and perspective of an individual buyer. The value is related to risk and the ability of the business to generate an income stream acceptable to the buyer. The value placed on a business takes into consideration its historical profitability, the industry it operates in (some are more desirable than others) and the future growth and sustainability of its income stream.
The price of a business is normally made up of three components:
- Goodwill
- Plant and fixtures and fittings
- Stock/materials
1 Goodwill
Is the amount you are paying for the earning potential of the business based on its historical performance and future maintainable earnings?
2 Plant, Fixtures and Fittings
The value of the tangible assets of the business used to generate its income. Normally this value is the depreciated book value.
3 Stock
The historical cost of the stock or materials sold to generate a profit.
There are 3 methods commonly used in valuing a business - earnings based, asset based and market based. A fair market approach based on industry experience and comparable sales may well be the most accurate indicator of value.
1 Earnings Based (PE)
This is the most common method of valuing larger businesses and is referred to as the PE ratio. (Profit earnings ratio. E.g. 4.5). This means the earnings after tax and managers wage is multiplied by 4.5 times. The PE ratio varies depending on the industry, risk factors, desirability of the industry it operates in combined with the demand in the market for that type of business.
2 Asset Based
This method is used where the business requires a large financial investment in plant and equipment and the PE ratio would result in a price below the asset value of the business.
3 Market Based
In some instances the market is paying higher prices for certain businesses that are highly sought after and similarly on the other side of the scale lower prices if the industry it operates in is not desirable. For anyone to value a business on this basis they must have an in-depth experience and knowledge of not just valuation methods and the theory but actual first hand knowledge of what similar businesses have sold for in the market place. LINK has compiled over recent years a database of prices paid for hundreds of businesses giving it the ability to balance prices relative to market place demand. Irrespective of any valuation method the only true value is based on what the market place will pay and the final price agreed upon between a willing buyer and a willing seller.
NOTE: For more detailed information on valuing businesses click Business Valuations Appraisals & Opinions.
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Q. How much equity do I need and how much can I borrow?
A. This will vary depending on the business, its financial history, the value of assets and your history as a business owner. In some cases you may require property as security for the loan. We can suggest financial institutions suitable for funding your acquisition. Once we have an overview of your financial situation combined with our knowledge of the business we may be able to recommend a suitable financial institution.
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Q. What return can I expect for my investment?
A. Based on historical sales the accepted return on funds invested into a SME business will vary depending on the industry. Many factors come into the equation; in some cases where the industry is very sought after, a well known and respected brand, with strong growth and cash flows investors will purchase the business on a lower rate of return due to the lower risk factor. On the other hand if the business operates in a high risk industry with strong competition and a shortage of skilled labor they will require a much higher rate of return. Figures used to calculate the rate of return are normally based on an after tax, management and in some cases depreciation, cash surplus. This ranges from approximately 17% in a low risk situation to 40% in a high risk industry. Once again this is just a general overview and varies depending on the individual situation.
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Q. Can I use independent advisers when purchasing a business?
A. Yes, throughout the various stages you can consult with advisers such as solicitors and accountants. Your solicitor can approve the sale and purchase agreement before you sign it and in the due diligence process you can use your advisers to assist you.
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