LINK South East Queensland | BUSINESS SURVEY April 2010
David Fitzgerald, Managing Director, LINK South East Queensland
Business Broker Magazine
Volume 2, No 2 (April 2011) - More!, You Want More?
Volume 2, No 1 (September 2010) - Bank Finance & Buying a Business Today!
Volume 1, No 4 (May 2010) - The Road to Growth!
Volume 1, No 3 (February 2010) - Opportunity Knocks!
Volume 1, No 2 (November 2009) - The Tide is Turning
Volume 1, No 1 (August 2009) - Introducing LINK
E-Newsletters
11 March 2011 - After The Floods What Now?
22 February 2011 - Handy Tips For Buying A Business
27 January 2011 - January 2011 We Shall Never Forget!
21 December 2010 - 2010 The Year We Had to Have
18 November 2010 - Record Sales Month
5 November 2010 - Reduce Debt and Make Money
15 October 2010 - Is your Bank really open for Business?
1 October 2010 - Buyers get Educated!
1 July 2010 - New Year New Business!
18 June 2010 - Business Sales on the Rise
3 June 2010 - The Storm before the Calm
11 May 2010 - The New Economic Cycle
23 April 2010 - Conditions and Confidence Improving
1 April 2010 - Where is the Market At?
4 March 2010 - Short Stockages! But wait there's more!
18 February 2010 - The Outlook is Good, Very Good!
4 February 2010 - Businesses Rejoice
21 January 2010 - Banks Hold the Key
8 December 2009 - Record Sales Month of November
28 November 2009 - It's All About Confidence!
Media Releases
12 April 2011 – The Australian Financial Review – MELBOURNE LEADS SALES RECOVERY
Sales of small to medium-sized businesses are improving after a sluggish 12 months. For LINK business brokers, the hot spot is Melbourne, which appears to be a buyers’ market.
“There seems to be more confidence and more money in Melbourne than anywhere else,” says managing director David Fitzgerald of LINK, a franchise with offices in Sydney and the Gold Coast, seven in New Zealand and 30 in South Africa.
Business sales were down nationally by 70 per cent last year, he says, referring to Australian Institute of Business Brokers figures, a situation exacerbated by natural disasters, particularly in Queensland.
In Melbourne, where the business sales pictures is a little healthier, down by 30 to 40 per cent, the average sale price in LINK’s experience is $400,000 to $600,000 for retail businesses like coffee shops. Four to five years ago, Fitzgerald says that such businesses would have sold for $800,000 to $900,000.
However non-retail businesses in the manufacturing sector are selling, but given their size and cost, not in the numbers recorded in retail.
“They are selling better [in Melbourne] than anywhere else,” Fitzgerald notes after a year when six to eight sales were typical.
“We are now getting back to one to two a month. Manufacturing is starting to move.” Other sales outside Victoria include a jewellery business on the Gold Coast for more than $3 million. He attributes Melbourne’s strong showing to its attractiveness as a destination for business migrants. “Sydney used to get the lion’s share of business migrants but now that is going to Melbourne,” he says.
Despite that, the strong Australian dollar is dampening the hopes of some migrants planning to run their own business. Recent Danish clients of LINK lost 15 per cent of their money on the exchange rate, a situation that convinced a couple of their friends to postpone moving to Australia, Fitzgerald says.
Marcus Salouk, a director of Scancorp which specialises in the divestment of businesses in the $2 million to $50 million range, admits the strong dollar has some impact on foreign investors. But he dismisses reports in the industry about the strength of foreign investment.
“We don’t see as it is a strong as it’s made out to be,” he says adding that most buyers are local.
Overall though, he reports a definite pick-up in the sale of good quality businesses “and an improved appetite from investors”.
One trend he observes was for businesses valued at more than $5 million preparing for a possible sale. Those businesses put their sales on hold because of the impact of the global financial crises, but are now posting financial results that support healthier valuations.
Sectors where sentiment to sell is strongest include manufacturing, mining and infrastructure services. Also, a few childcare centers are on the market. In March Scancorp handled the sale of the largest minority state (24 per cent) in the Brisbane Broncos NRL Club.
In the past few months Linkara Capital has helped sell an $18 million electrical contracting business which was acquired by a private equity firm looking for exposure to the electrical services market, in particular for mining clients.
Another successful transaction involved facilitating a land deal for a major Australian company for a technology centre with commercial sheds.
Linkara founder Lindsay Karathanassis says there has been a “massive pick-up” in the market in the past 12 months with large buyers willing to acquire smaller businesses.
12 April 2011 SmartCompany.com.au – Business sales plunge in 2010, with outlook for 2011 cloudy
Business brokers are mixed as to whether SME business sales will recover in 2011, with dampened consumer confidence, the high Australian dollar and cautious lenders seen to be holding back demand.
With the Australian Institute of Business Brokers concluding there had been a 70% fall in sales last year, Queensland-based business broker LINK has reported a solid start to 2011, albeit from a low base.
LINK managing director David Fitzgerald says the market has been helped by South African interest in Melbourne, and interest in franchises in Sydney.
Fitzgerald says South East Queensland, by contrast, has been hurt by recent natural disasters and a dearth of buyers from New Zealand, who traditionally accounted for 15% of sales but now would fall in at under 1% as currency movements reduce the attractiveness of Australian businesses.
Fitzgerald says he's finding that business migration has "slowed in Queensland, a little bit in Sydney but seems to be picking up in Melbourne."
This, in turn, has increased demand for SMEs, particularly coffee shops, newsagents and franchisees.
Even the unpopular manufacturing sector has been getting interest in Melbourne, Fitzgerald says, although any company that is not making money would unsurprisingly find it tough to sell.
And it's not just the record Aussie dollar that's holding retail companies down – Fitzgerald says high rents and fears on security of tenure and refurbishment requirements are also weighing on sentiment for retail.
"It's very much a buyers' market, and the people who have the money realise that."
He says the average sale price for a business in Melbourne is between $400,000 and $600,000.
"The banks are still making it very difficult for people to borrow money to buy businesses."
"It's almost as if the banks don't recognise goodwill."
Hurst Partners, a Victorian business broker, is not so upbeat on current conditions and outlook.
Principal Rob Hurst says the market is "very twitchy" and concurs the banks aren't assisting with their failure to provide funding.
After a small pickup as the Government's package washed through the market, Hurst says there's been weakness for the past 12 months or so and the market was unlikely to lift until consumer confidence turns the corner.
"People's confidence has been knocked about by news overseas and local disasters," Hurst says.
"They're skirting around it, but they seem to be nervous."
His clients, including those in the service industry, are often looking to retire, escape from burn-out or pursue a change of direction, he says.
1 June 2010 - The Australian Financial Review - GLUT LOOMS AS BABY BOOMERS BALE OUT
Small business owners are waiting longer to sell their businesses as purchasers face a tighter financing market and as owners compete with the ever increasing number of other businesses on the market.
LINK business brokers managing director David Fitzgerald said that the average time to sell a business has risen from 15 weeks to 21 weeks. For a home-based business, the average selling time is 13 weeks to complete the sale, and only 24 per cent of buyers want to work from home.
“This certainly tells us that buyers are still being careful with their money … 38 per cent of buyers said that they had had to re-evaluate the size and type of business that they can afford due to tighter restrictions and changes in lending policies imposed by banks,” Mr Fitzgerald said, referring to the results of national survey by his firm of 2500 business buyers and sellers.
The survey also found that the number of parties wanting to buy a business increased 39 per cent from last year, and 64 per cent of buyers needed to borrow money.
But despite the pick-up in interest, 81 per cent of buyers and business owners have experienced difficulties obtaining finance.
“The average buyer is now taking 35 weeks or almost nine months to find a business that is suitable or that they can afford,” Mr Fitzgerald said.
While 86 per cent blamed this situation on incorrect or insufficient information on pinpointed businesses for sale, almost 44 per cent also believed difficulties in obtaining finance had been a contributing factor.
Accounting firm William Buck director Dennis Laundy criticized small business owners who failed to provide credible answers to interested buyers.
The quality of information must be truthful and transparent, as buyers are looking for traps or hidden risk, he said.
“You have to be able to provide a credible answer as to why you are selling, be prepared to be restrained from acting in competition to the purchaser, get some good advice and plan,” Mr Laundy said.
“But ultimately, a track record of good, solid financial performance is the main factor that will increase the value and attractiveness of your business.”
Another critical factor that will hit the value of a small business is the emerging oversupply.
Mr Laundy claimed that a looming generational change in the business landscape, under which thousands of businesses will be put up for sale in the next few years, will result in an oversupply and will depress prices.
For businesses that are not well run, consistently profitable and cash flow-positive, the chances of selling at an attractive price may diminish or owner operators may even be forced to close.
BizExchange, a broker that publishes a quarterly index based on businesses listed on its website, predicts that prices for private businesses will be relatively stable in the June quarter.
Improved consumer sentiment had not translated into higher business values, said BizExchange chairman David Bird.
He warned that downward pressure on prices may emerge as babyboomer owners of $5 million to $15 million turnover businesses seek to sell.
“Those owners probably withdrew or held back from the marketing during the GFC,” Mr Bird said. “For some, the time is running out.”
Traditionally, cafes and restaurants were the most popular businesses for LINK’s clients, but inquiries in this sector are down 12 per cent.
Mr Fitzgerald said by contrast, “29 per cent of buyers are looking for businesses in the tourism and hospitality sectors – this is particularly promising as these were hit hardest during the GFC and we would have thought the longest to recover”.
Import and wholesale distribution is still in demand as the survey found 36 per cent of buyers looking in this sector, as is manufacturing at 31 per cent. Franchises have lost popularity, with only 28 per cent of people interested, perhaps owing to lack of education or understanding, said Mr Fitzgerald, as many good franchise opportunities were available.
“The service industry has strong interest at 33 per cent of respondents while building and construction has lost favour at 18 per cent,” Mr Fitzgerald said, while 21 per cent of buyers were looking for a professional services business.
6 May 2010 - Gold Coast Bulletin - SURVEY SHOWS HIGH RENTS HIT DEMAND FOR CAFES AND RESTAURANTS
Rising rents and dwindling returns have cut buyer appetite for cafes and restaurants on the Gold Coast, but there has been a surprising surge in enthusiasm for the troubled tourism and hospitality sector.
Business broker LINK, in an inaugural survey of its Gold Coast clients, found only 12 per cent of buyer inquiries for restaurants and cafes, down from between 35 and 38 per cent in peak economic times.
"We've always had a lot of inquiry for coffee shops (in the past)," said LINK managing director David Fitzgerald.
He said they used to be considered 'safe' businesses, but higher rent and a spate of restaurant closures had turned sentiment in the past 12 months.
"Many of them (restaurants and cafes) haven't been performing that well," he said. "Broadbeach has had a few close down and people are quite nervous about it."
The fall in demand comes despite inquiry for retail businesses holding up at 38 per cent, he said.
Mr Fitzgerald said the surprise performer in the survey had been hospitality and tourism, with 29 per cent of inquiries targeting the sector.
"Given the current economic climate, we were surprised with that figure," he said.
Mr Fitzgerald said while many buyers saw hospitality and tourism as a lifestyle change, they also felt the tourism market on the Coast had bottomed and offered strong upside potential.
He said many tourism businesses tended to be smaller with lower overheads, 'whereas many restaurants and cafes are paying big rent'.
Mr Fitzgerald said Gold Coast businesses valuations had fallen in the past two years, but he was confident they would recover.
Many business owners felt the Coast was 'on the cusp of seven-year cycle of prosperity'.
"Interestingly, every business that said this had an established owner or had been running for 20 years or more, something I feel gives credibility and weight to these predictions," he said.
The LINK survey also revealed a slide in demand for franchises after a GFC-inspired surge this time last year.
Mr Fitzgerald said buyers at the time saw franchises as 'safe' businesses that were backed by 'big brother'.
He said he saw the emergence in the market of more entrepreneurial buyers, who preferred to 'control their own destiny'.
While buyers were 'right back in the market', he said many were shocked by how little they could borrow.
"Twelve to 18 months ago they had access to $800,000 and now they go to their bank and find they have only $500,000."
LINK has found 81 per cent of buyers and business owners were having trouble securing finance.
"The average buyer is now taking 35 weeks or almost nine months to find a business that is suitable or that they can afford," said Mr Fitzgerald.
10 March 2010 - Gold Coast Bulletin - BUSINESS PURCHASERS ENTICED BY PROPERTY DEALS
Gold Coast businesses-for-sale with included solid leasing options or title deeds are being looked upon very favourably by buyers, says a local business broker.
David Fitzgerald, managing director of Gold Coast business brokers LINK, says that post-GFC business sales have been heavily influenced by commercial property inclusions.
“Prior to the GFC there was a lot of money being spent, and finance was relatively easy to come by, so a lot of people effectively had the luxury of being able to take risks on the businesses they were purchasing,” Mr Fitzgerald says.
“Now, they want to know exactly what they’re getting, and having concrete leasing options or a title deed is being seen as a major bonus for businesses that are on the market.”
“Buyers are really seeing it as a positive sign of the business’s future, and a lot of banks want the security that a leasing option or included property gives the business.
“In fact, more than ever we’re seeing that a lot of banks will only loan money for a business in line with the length of the lease – making leasing options very desirable from a finance point of view.
“From my perspective as a broker, selling a business is much easier when future of the commercial property has some certainty about it.”
Mr Fitzgerald recalls a buyer that was about to purchase a large and successful Gold Coast business – however, issues with the lease tenure effectively made the business unsaleable.
“The business itself was very successful – the buyer didn’t have any problems there,” he says.
“However, when we commenced discussions with the lessor we discovered that the cost of renting the commercial space was going to increase dramatically, so much so that it actually made purchasing the business unfeasible.
“The overheads became really quite high, and from the buyer’s perspective it was a wise decision to cease discussions there, as the GFC would have made that business quite unmanageable.”
According to Mr Fitzgerald, the business world has changed immensely in recent times, and different buyer behaviours are starting to show as a result.
“At the end of the day, business buyers are looking for more certainty in their purchases, and the included commercial property has become a very significant consideration in these decisions,” he says.
“Given the economic difficulties of the last few years, security has certainly become the order of the day.”
2 March 2010 - The Australian Financial Review - CRIMPED BY BIG BANKS' LOAN CRITERIA
Business brokers want banks to loosen their purse strings as a pickup in investor confidence lifts the number of potential buyers.
Gold Coast-based Business Sales Corporation, which trades under the LINK brand, says the four major banks are maintaining global financial crisis-inspired lending criteria when more people are inquiring about buying businesses.
LINK managing director David Fitzgerald says when he met representatives of one big bank recently, they intimated that ‘the powers that be’ had placed heavy restrictions on lending to all businesses, with some sectors being barred from obtaining credit”.
Not only do lending criteria affect the market for businesses, in which LINK operates, they restrict the ability of businesses to grow.
“A lot of the lending guidelines at the moment, I fell, are impinging upon that,” Fitzgerald says.
In the year to January, buyer demand at LINK offices was up 82 per cent.
Debt collection agency Dun & Bradstreet reports the biggest rally in the history of its business expectations survey between the June and December quarters – up 31 percentage points since the lows of the June quarter of 2009.
D & B chief executive Christine Christian forecast that if the profit and employment expectations of firms were met, this could contribute to restoring Australia to pre-crisis levels of business activity.
But it appears that banks are cautious about lending.
“Thirty-five per cent of firms indicated that credit market conditions are detrimentally impacting operations,” D&B says.
Online marketplace The BizExchange also complains that continuing stringent conditions have stalled some transactions.
“A number of business brokers have reported that overly restrictive bank lending criteria have prevented some quality businesses changing hands,” says BizExchange chairman David Bird.
Its December quarter newsletter, released this month, questions if the withdrawal of stimulus payments and home loan incentives will affect consumer sentiment.
But Fitzgerald is optimistic about the short to medium term.
“We’ve seen a couple of examples very recently where loans have been made that are a bit incongruous with what we’ve seen over the past 12 months,” he says.
“I think it’s an indicator that the banks are testing the waters a bit – I would imagine they’re probably trying to toe the line between appearing to be fiscally responsible and wanting to make money and encourage the cash flow again.”
18 February 2010 - THE OUTLOOK IS GOOD, VERY GOOD!
At LINK we are in a very privileged and fortunate position whereby we have access to the most confidential information of a great number of businesses in almost every industry. Also we are constantly talking to a lot of buyers that are actively looking to buy a business who also give us a great insight into businesses and current market performance. While we keep this information strictly confidential there are general observations regarding business sectors and the local economy that we are able to share.
Across the board business is improving! That is not to say that 100% of businesses are trading well, however in general confidence is good and the economy is growing. There are some businesses struggling to recover and in most cases this is due to other factors unrelated to the state of the economy. They are either in a highly competitive field, have excessively high overheads, have a product or service that is in low demand or have a management and or personnel issues.
From a buyer’s point of view now is a good time to buy a business, even if it is doing well as it can improve as the economy strengthens further. The economy still has a long way to go with slow solid growth expected, especially in South East Queensland.
I believe that most buyers know this and while you need to be cautious and do your homework you need to be diligent as good businesses are being snapped up and buyers are missing out. Demand for good businesses is currently greater than supply!
5 February 2010 - HOMESTAY BUSINESS DEFIES GFC, MOVES TO GOOD HOME
A Gold Coast homestay business with forecast growth of 162% has changed owners and operating premises in order to deal with the high demands on the service.
Eastern Shores International (ESI) finds family homes in Australia for overseas students to stay at whilst studying. Known as ‘homestay’, this form of accommodation has become a popular way for incoming students to save on rent costs and for host families to make a bit of extra cash each week.
However, according to Gloria Keinert – one of the business’s new owners – the homestay scheme presents much more than just financial benefits.
“I think there’s a lot that both the students and families can learn from eachother,” she says.
“Certainly, it’s a great way for the students to learn about their host country, and to learn in such a way that would perhaps be difficult if they were just living with other students.
“But then, for the families, it’s a great way to learn about other cultures, and particularly to educate younger children on the values of multiculturalism.”
Mrs Keinert and her husband Cliff purchased the business with associate Rod Diaz. Whilst they certainly had to ‘hit the ground running’ due to the business’s ongoing demands, Mrs Keinert’s prior experience owning both migration and travel agencies has helped them to deal with the logistical side of running a homestay business.
She says moving to new premises at Varsity Lakes was a necessity given the rapidly increasing demand the business was experiencing.
“We had no choice as there were a record number of new students due to arrive on the Gold Coast and we needed a bigger office to accommodate more staff,” Mrs Keinert says.
“Thousands of students from all around the world are enquiring about coming here to study – the Gold Coast has a reputation for excellent education facilities.
“Not only this, but the Gold Coast provides countless things for students to do in their spare time, be it going to the beach, visiting a theme park, or trekking through bush in the hinterlands.”
David Fitzgerald, Managing Director of Gold Coast business brokers LINK, sold ESI to Mr Diaz and the Keinerts from its previous owners who were unable to keep up with the exponential growth of the business.
The previous owners were really passionate about the business, however, they had other things to concentrate on and felt that handing control over to someone else would be the best decision – both for the service and for themselves,” he says.
“Managing Eastern Shores is absolutely a full-time job, no doubt about it.
“They’ve got over 700 local families on their books and around 130 in Brisbane - the fact of the matter is homestay is rapidly becoming one of the Gold Coast’s largest exports.
“It’s a remarkably simple business model that’s providing extra weekly earnings for working families and, in doing so, is helping to support the Coast’s economy.”
ESI fared well during the financial crisis, continuing to grow 39% last year despite the economic turmoil.
Forecasts, however, are indicating that the business should grow over four times that figure this year.
Mr Fitzgerald says: “Where a lot of businesses were either stagnant or experienced negative growth during the GFC, Eastern Shores actually grew quite considerably,” he says.
“Now that we’re looking at financial upturn they stand to do very well.”
About Eastern Shores International: ESI was established in 2001 by two dedicated founders wanting to provide a quality service for international students coming to Australia. They connect students, families, and education facilities to provide simple solutions that benefit all parties involved. The business has consistently grown by more than 30% each year, and is now the biggest homestay provider on the Gold Coast, with a solid footing in the Brisbane market as well.
February 2010 - BANK'S HOLD THE KEY TO BUSINESS RECOVERY IN 2010
The four major banks’ post-GFC lending restrictions are making it difficult for the business sector to perform at its peak and is something that will influence how the economy recovers this year according to a leading business broker.
David Fitzgerald, managing director of Gold Coast business brokers LINK, says despite the latest Access Economics quarterly business outlook stating that Australia is having a “miracle” recovery and the IMF predicting that the Australian economy will grow at 2.5 percent this year – higher than their October 2009 prediction of 2 percent – the Australian banks are still cautious to lend credit.
“We actually met with some of the decision makers from one of the Big Four recently, and they intimated to us that ‘the powers that be’ had placed heavy restrictions on lending to all businesses, with some sectors being barred from obtaining credit altogether,” he says.
“For us, the banks’ capacity to lend credit plays a huge part in how people buy and sell businesses.
“But right across the board, businesses need access to finances in order to grow over the next year, and a lot of the lending guidelines at the moment, I feel, are impinging upon that.”
Mr Fitzgerald says that the change in the business market in as little as 12 months has been astounding.
“Between January 2009 and January 2010 we’ve seen an 82 percent increase in buyer demand, which is great news for us, obviously, but it’s indicative of the way that confidence in the business sector has really been restored,” he says.
“All the indicators are looking good. At the moment, the Commonwealth Bank of Australia are predicting they’ll make an annual profit of $6 billion - a figure I don’t think is necessarily peculiar to just them.
“I can certainly see the virtue in financial frugality in tough times, but I think now is the time to start freeing up a bit of credit in order to get things flowing again.”
However, for some in the business community the tightened lending has been a blessing in disguise.
Paul Niederer, CEO of capital raising platform ASSOB, says that the economic downturn and resulting behaviour by the banks spurred a spike in businesses looking for private capital.
“In a lot of respects 2009 was a slow year for the business sector, but we found that a lot of small to medium sized companies that were being turned away by the banks were coming to us to raise capital,” he says.
“There were certainly a number of businesses last year that took the credit crisis as an opportunity to improve their setup or their business plan, and it’s those companies that are now looking at a period of strong growth as they’ve done the hard yards already.
“We’ve certainly benefited from the lending conditions of the past year or so, so I’m not really in a position to say whether or not the banks have been making the right decisions financially – I might be a little biased in that respect.
“However, more than anything I think slightly more relaxed lending standards this year will be of huge benefit to the small business sector, for whom relatively small loans can really make a difference in their business’s direction and earning capacity.”
Mr Fitzgerald believes the outlook is set to improve, if only slowly.
“We’ve seen a couple of examples, very recently, where loans have been made that are a bit incongruous with what we’ve seen over the past 12 months,” he says.
“I think it’s an indicator that the banks are testing the waters a bit – I would imagine they’re probably trying to toe the line between appearing to be fiscally responsible and wanting to both make money and encourage the cash flow again.
“The Government has given the banks an extremely powerful mandate whereby they basically have control of our economy – let’s hope they will act compassionately and responsibly, bearing in mind that Australia’s financial outcome this year will largely be a result of their actions.”
4 January 2010 - Gold Coast Bulletin - SURF'S IN, SUSHI'S OUT FOR CHEYNE
Champion surfer Cheyne Horan is well known for his exploits on the waves but few would be aware that he owns a sushi restaurant on the Gold Coast - a venture that he is now looking to sell to a new owner.
S Sushi, Cheyne's sushi restaurant in Palm Beach, was set up because of the surfer's commitment to healthy food.
Now, because of commitments in Bali, he's looking to offload it.
"At the moment, I'm really looking more to focus on my surf schools, both in Bali and Australia," said Cheyne.
"At the end of the day, I just had to look at what I was going to be able to do best - surfing won out in the end, of course."
The restaurant is for sale for $150,000.
28 November 2009 - Gold Coast Bulletin - BUSINESS BUYERS RETURN TO THE MARKET
The improving sentiment in Australia’s property market is not the only indicator the economy is recovering with sales of businesses also on the rise after a particularly slow year.
One of Queensland’s largest business brokers, Gold Coast based LINK, have noticed demand from buyers for good businesses has improved significantly and expect the market to be bullish from early 2010.
Managing director David Fitzgerald says businesses are selling much faster than six months ago with many potential buyers missing out because they are taking too long to make a decision.
“Smart buyers realise that it has never been a better time to buy a good business as values reflect the economic climate we have just been through,” Mr Fitzgerald says.
“The upside for them is that future earnings look positive with indicators such as the Reserve Bank’s monetary tightening cycle beginning and optimism returning to equity markets.
“This all filters down to consumers who in turn provide the demand for many businesses goods and services, which in turn increases a businesses value.”
Mr Fitzgerald says the number of active buyers ready to purchase a business has increased by 63 percent in the last six months.
“Sales of businesses have also increased by 19 percent in the last six months which we expect to improve dramatically in 2010 as buyers have only recently re-entered the market,” Mr Fitzgerald says.
“Six months ago buyers were predominately looking to buy a job in safer low entry price businesses predominately in franchising.
“The influxes of buyers that have entered the market now are looking for growth businesses and those that may have been affected by the GFC that are now showing signs of recovery.
“There is no particular industry or business that is in high demand as buyers are coming from a vast range of experience and backgrounds. While there are many Gold Coast buyers there’s is strong demand for businesses from Sydney, New Zealand, South Africa and the UK.”
Mr Fitzgerald says the trend is for potential buyers of businesses to follow the smart money, especially after they have missed out on two or three good business opportunities.
“There is an increasing number of people either returning to business ownership or considering it for the first time, and once they miss their first couple of opportunities they tend to make decisions much quicker,” Mr Fitzgerald says.
“This is a trend we have seen before after coming off the back of an economic slowdown, with increased business confidence providing the kindling for the fire that fuels demand that will eventually outweigh supply.
“In fact we believe that there will be a shortage of good businesses available in 2010.”
Mr Fitzgerald says financing remains the only challenge to business buyers and sellers as the major banks are still practicing extremely tight lending policies.
“With business confidence leading recovery, we expect the financial institutions to also eventually fall into line and re-evaluate their lending policies, which will further provide stimulus for business sales,” Mr Fitzgerald says.
LINK was established in Australia on 1 July by David Fitzgerald, Tim Craft, Guy Cooper and Peter Jackson after more than 50 combined years in the business broking industry. A Sydney office opened in October.
The organisation was founded in New Zealand in 1996 to establish a new paradigm in terms of service and professionalism that was lacking in the Business Broking industry.
15 December 2009 - The Financial Review - HIGHER PRICES ELUDE VENDORS
After 12 months that were quieter than previous years, Paul Prowse, a director of Business Buying Services, has picked up some big clients in the past few weeks who are looking to buy a business after leaving corporate life, or are former business owners who want to buy a new enterprise. BBS caters to buyers with $500,000 to $2 million to spend.
"During the last month there seems to be an increase in activity," said Mr Prowse who noted that the banks were still tight with funding.
On the vendor side, he reported that business owners whose superannuation had been devastated were now considering selling their businesses after restoring their retirement funds to healthier levels.
"They've recovered most of their super and they realise they can't cancel retirement, they can only defer it."
At Gold Coast-based business broker LINK, managing director David Fitzgerald said he considered November "one of our best months in two years for sales".
After a quiet period this year, executives wanting to go solo and cashed-up partnerships and private companies are back in the market.
Sales values as high as $2 million to $3 million were achieved with an average of $600,000 to $700,000. Last week, the 11-broker office settled on a $1.2 million takeaway business but firms in the fitness industry, construction, accommodation, cafes and manufacturing have also been sold.
However, local and overseas demand for well-managed manufacturing businesses outstrips supply.
That includes a large Victorian fencing business with $6 million to spend on a similar business in Queensland and a New Zealand plumbing business looking for a plumbing and electricity business in Queensland and NSW.
Mr Fitzgerald said; "We've got a lot of money that wants to come across from New Zealand but we haven't got anything for them."
Despite the higher demand, vendors are not flocking to offload their businesses. Businesses are valued on a multiple of their earnings and many have seen those earnings drop in the past 18 months, lowering values. Rather than sell now, they are hoping for improved sales and profits that will lift values.
For retail outlets in big shopping centres who suffered not only falls in sales during the global slump, but also escalating rents, the improvement could take a lot longer. Whereas before the crisis their business values were 2.5 times earnings before interest and tax, the figure is now 1.75 to 2 times.
On the timing of the recovery for most sectors, Mr Fitzgerald said: "It's going to take until the 2011 financial year for these businesses to get back to the value where they were."
The September-quarter BizExchange Index noticed a shift in the type of businesses on the market, with more micro-businesses valued at less than $1 million on offer but fewer businesses for sale in the more expensive medium bracket.
BizExchange chairman David Bird said; "There's been a lot of turnover of cafes and restaurants. People were leaving positions to go and buy into those businesses. The turnover is fairly high in those seven-day-a-week businesses because after three years, people are stuffed and have to go and have a rest.
"With the GFC, a lot of small retailers struggled a bit and there was a bit of desperate selling."
Owners of larger businesses decided to hold out until prices improved. "The larger ones have the cash flow and at least some sort of profit. Because values dropped away they are not prepared to sell for lower prices," Mr Bird explained.
On balance, the number of businesses listed for sale remained steady but Mr Bird said there was more buying interest, particularly in the middle market area.
But he criticised the banks which he said were holding back a bigger upturn in sales. "The banks are still very reluctant to finance good deals. They are looking to repair their capital structures, which is slowing down the turnover."
While potential buyers are once again able to raise sufficient capital to fund the purchase of a business, according to the index, lenders will look for more stringent due diligence and strong balance sheets.
"Consequently," BizExchange said, "businesses will need to be in good health with well-maintained and presented accounts if they are to obtain premium prices, although a number of business brokers have reported that this has not been enough to satisfy some banks and some transactions have stalled as a result."
Mr Bird believes the slide has been arrested and values are unlikely to fall further. An improvement in market sentiment is likely to translate into an increased number of listings in the next two quarters. Many of those listings are expected to come from business owners who delayed putting their firms on the market because they wanted higher prices.
But delay will not necessarily be translated into higher prices because they will join a significant number of listings carried over from previous quarters.
Although the index sensed a dramatic improvement in market sentiment, lifting it into positive territory for the first time in 18 months, and consistent with other consumer sentiment surveys, it "is yet to be reflected in market prices".