How To Know The State Of The Market In Australia

Transcription

1 AIBB SMALL BUSINESS SALES INDEX THE STATE OF THE AUSTRALIAN MARKET JUNE 2014 QUARTER SEPTEMBER 2014 QUARTER Powered by BizStats AIBB BizStats is Australia s largest database of completed business sales NOW TRUSTED BY MORE THAN 7,500 PROFESSIONALS INCLUDING FINANCIERS, ACCOUNTANTS, LAWYERS AND STATE & FEDERAL GOVERNMENT MINISTERS THE AIBB IS AN ALLIANCE PARTNER OF THE COMMONWEALTH BANK 1

2 WHAT IS AN AUSTRALIAN PRIVATELY HELD BUSINESS REALLY WORTH? Any examination of the real value of a privately held business in Australia must consider the value that comparable businesses have actually sold for in the current market. The Small to Medium privately held business sector represent over 95% of all businesses in Australia and equates to a Trillion dollar investment by individuals and Australian families in their financial future. Basing the hypothetical value of a small to medium businesses on business listing prices, unsubstantiated formulas or anecdotal evidence without consideration of the part that the market plays in setting prices is ignoring the facts. BizStats is a secure database record of settled privately held Business Sales in Australia which is owned and administered by the Australian Institute of Business Brokers. It is the largest database of completed private business sales in Australia. Data is obtained from information supplied by the Institute s professional Business Broker Members nationwide who facilitated the sale of A$3.4 billion* in settled private business sales in The Institute surveys all Members across Australia on a weekly basis to ascertain the state of the market at that point in time. This is reflected in real time on the Institute s website at by way of the Market Indicator Gauge. Screenshot of the AIBB BizStats database During the 2013* calendar year, AIBB Accredited Business Brokers across Australia achieved the following KPI s: AIBB Members wrote nearly 2,000* Business Sales Contracts AIBB Members made average Business Sales of A$6,469,927* per Broker AIBB Members collectively wrote over A$ 2 Billion* in Sales AIBB Members interviewed over 90,000* Buyers in Face to Face meetings AIBB Members evaluated over 82,000* Businesses offered for Sale 88.5%* of AIBB Members referred Clients to other Service Providers eg, Finance, Accounting, Legal and Insurance etc during 2013 For more information about the real values of Small to Medium Businesses in Australia please contact your local AIBB Business Broker. A full list of Members is contained on our website at: * Figures extrapolated from respondents to the Members Survey

3 AIBB AND THE QUARTERLY SURVEY The Australian Institute of Business Brokers (AIBB ) is the peak industry body in Australia representing professional Business Brokers engaged in facilitating the transfer of Ownership in SME businesses since The Institute conducts quarterly surveys of its members across Australia in July, October, January and April each year to determine the State of the Small to Medium Business marketplace as its Members are ideally placed to provide an accurate assessment of Market Conditions in this sector. AIBB Accredited Members showcase their client s businesses using the Institute s proprietary website, where over AUD $7.9 Billion of pre-qualified businesses are availabe for immediate purchase. Actual sales data is drawn from the Institute s proprietary BizStats database of completed business sales which records details supplied by its Members of completed private business sales across Australia. In addition to graduation of the mandatory Certified Practicing Business Broker (CPBB ) training program required for AIBB Membership, the Institute offers advanced training for members to qualify to become AIBB Registered Business Valuers (RBV ). RBV graduates have gained recognition from Government, Financiers, the Courts and Industry stakeholders as being professionally competent to provide Expert Reports of real business values of SME s in Australia. SUMMARY OF THE SEPTEMBER 2014 QUARTERLY SURVEY The relative stagnation noted in the March 2014 survey appears to have continued, with perhaps a slight dip appearing in the September 2014 quarter. This is usually an upswing quarter, as businesses enter the new financial year, but economic instability may have dampened that. Sale prices have generally remained the same, but half the respondents indicate that businesses are taking longer to sell. Availability of finance is still a challenge and in many cases, vendors financial performance does not reflect their pricing expectations. Some optimism is there as regards the potential success rate, with respondents expecting that it will be easier to sell businesses next quarter however, the number of qualified buyers has fallen commented Vic Whitely, Director & National Treasurer, AIBB. Retirement continues to be the main reason given by sellers, but this reason sometimes dampens the sense of urgency to sell. The general expectation and, possibly, hope is that there will be a slight improvement in the next quarter. 2

4 AIBB MEMBER SURVEY DEMOGRAPHICS All States & Regions were represented in the responses to the survey with participation proportionate to state membership and population demographics consistent with previous surveys. BUSINESS BROKER COMMENTS Notable comments made by AIBB Business Brokers for the September 2014 quarter included; Overly cautious and influenced by negative political and economic media comment Slow, buyers are very nervous Many small businesses are trying to sell, however due to the number of hours they work and the lack of profitability, buyers are difficult to find Tough buyers market with scarcity of quality listings available More inquiry, although owners are not putting good businesses on the market Extremely Tough as vendor expectations are for too high a price and too few buyers to create competitive tension There is significant appetite for solid, profitable businesses showing signs of growth, however, these businesses seem to be very rare. Many large businesses (i.e. turnover $1m+) seem to have contracted over the last 3 years making it a difficult proposition to achieve an acceptable sale price There is continuing caution by lending institutions. Reasonable enquiry level but pricing expectations between vendor and buyer is remarkably different Buyers are still cautious and looking for a bargain, but good well priced businesses are still attracting interest 3

5 THE STATE OF THE MARKET IN AUSTRALIA - THE FACTS At the end of the September Quarter the market indicator gauge (available for real time review at remained in the Buyer s Market section of the Market Sentiment Gauge nationally. Sentiment, however, was not uniform across the nation. The Eastern seaboard States each registered a slight improvement in market sentiment over the previous quarter while WA remained unchanged and SA retreated from a marginal Sellers market to a Neutral position. Market Sentiment (Australian Average) Buyer s Market Indicators: (a) Where there are more Sellers looking to Sell businesses than there are Buyers looking to buy businesses. (b) Buyers have a lot of choice between similar businesses (c) Buyers are making offers lower than the asking price. (d) When there is generally only 1 genuine buyer bidder per transaction. Seller s Market Indicators: (a) Where there are more Buyers looking to Buy businesses than there are Sellers looking to sell businesses. (b) There are very few similar businesses on the market at the same time. (c) Businesses are selling at or above the asking price. (d) When there are generally multiple genuine buyer bidders per transaction. Screenshot of the State-By-State Market Sentiment Guage at close of the survey AIBB s 300+ professional Business Brokers across Australia are polled weekly to provide input on activity by Business Buyers & Sellers. This gauge (above) indicates Real Time market activity across all sectors of the economy in the SME marketplace in Australia. 4

6 Number of New Listings For the September quarter, 33% of brokers reported an increase in the number of new market offerings, with 24% indicating that there had been no change. These two numbers continue the trend from the previous quarter, demonstrating that more sellers are keen to sell. Respondents showing a few more listings came in at 24%, however this was matched by those who reported less. This could indicate a shift in market share by brokers. Changes in Sale Price As with the March quarter, the response of little or no change was recorded, followed by those that he average sale price had dropped. This again indicated that sellers were keen to meet the market. Time Taken to Sell Businesses In this quarter, 43% of AIBBB business brokers responded that businesses have taken about the same time to sell as the previous period, with 50% responding that is taking from a little to a lot longer. This again reflects buyer caution, access to finance and economic uncertainty. 5

7 Success Rate in Selling Businesses The September quarter sees the same to a little higher success rate over the previous quarter, with 42% of brokers suggesting no change and 28% responding that the rate was higher, indicating that a rate of optimism is now creeping in. Number of Qualified Buyers The number of qualified buyers continues to fall from about the same as the previous quarter to a lesser number, with 8% responding that there are significantly less buyers. Only 27% say there are a few more buyers. Factors Restricting the Ability to Sell Businesses The responses from AIBB Brokers indicate that the main factor in this quarter in restricting the sale of businesses is the lack of availability of finance. There is a marked increase over the previous quarter in this factor. The second factor is the availability of new listings, followed by economic conditions. Again, market expectations are still not being met by sellers desires. 6

8 Access to Finance No change from the March quarter, with banks still being cautious about business lending. Approximately 10% say it is a little easier, however the lack of sellers having credible business plans and market forecasts still tips the balance in the favour of lenders. Outlook for Business Sales There has not been any general improvement in outlook over the previous quarter; however 30% of respondents expect that it will be easier to sell businesses over the next quarter, so there is a slight increase in bullishness. 7

9 Buyer Demand for Individual Businesses During the September 2014 quarter, which reflects the start of the new financial year, the sectors that showed slight increases were Food/Hospitality, Franchising and Services, along with Professional businesses. Retail, Accommodation/Tourism and Home/Garden continued to be in the doldrums, possibly due to the fact that this is the winter period. The automotive sector continues to be depressed. 8

10 Multiples for businesses sold for less than $250,000 The buy yourself a job segment We surveyed AIBB brokers on the multiples of earnings that businesses sold for in the September 2014 Quarter. For businesses that sold for under $250,000 (excluding real property), the multiple ranges of Adjusted Net Profit (PEBITDA) leaned towards the middle range. 1 to 2 times PEBITDA was the far and away the primary indicator, with 73%. The next highest was less than 1 times, followed by 2 to 3 times. Multiples for businesses sold between $250,000-$1,000,000 The mainstream small business segment We surveyed AIBB brokers on the multiples of earnings that businesses sold for in the September 2014 Quarter. For businesses that sold for $250,000 - $1,000,000 (excluding real property), the multiple ranges of Adjusted Net Profit (PEBITDA) were spread. The survey indicated that activity centred around the 1 to 3 PEBITDA range, with the main area being 1 to 2 times, closely followed by 1 to 3 times, which is similar to the previous quarter. This could indicate some optimism by buyers, who may be prepared to may be inclined to pay more for businesses with growth potential. 9

11 Multiples for businesses sold between $1.0- $4.0 million The elite small business segment As the size and value of businesses increase, the basis of their valuation typically changes from earnings figure before the owner s salary (PEBITDA), to an earnings after market-based remuneration to the owners. We have used EBITDA Earnings before Interest, Tax, Depreciation and Amortisation to reflect this. The most common multiple to reflect this was 2 to 3 times earnings, followed by 3 to 4 times earnings, which is a similar spread to previous quarters. We continue to see sellers and their advisors confusing the earnings figure on which to value their business and ignoring the Return on Investment and the influence the market has in setting the price. Multiples for businesses sold for more than $4.0 million The lower middle market segment For the lower mid-market segment of business sales the market range continues to be diversely spread, as these sales are invariably B2B sales, where the focus is on what the business is worth strategically to the acquiring party, rather than to the market as a whole. Typically, lower mid-market businesses trade at higher multiples than the elite small business sector, reflecting the strategic nature of acquisitions. However, the September 2014 survey indicates more of an even spread, with less than 2 times, 2 to 3 times and 3 to 4 times of Adjusted EBITDA reporting almost the same percentage. However there were also a very large percentage of Not Applicable/do not know responses, which may tend to question the veracity of some of the data in this sector. Either traditional trends have not been followed, with some panic selling taking place, or further research is required with comparisons in future surveys. 10

12 Reasons For Sale Once again, the overwhelming reason for selling businesses was retirement. No other reason comes close to this. It continues to indicate retirement of the Baby Boomer generation and caution about economic and trading conditions. Location of Buyers & Sellers The survey indicated that 93% of buyers came from the same home state as the sellers. Once again, a very small percentage was from overseas. Sellers should not at this stage consider that there are a large number of potential overseas based buyers who would look at buying their business. 11

13 Who Are The Buyers? The survey once again showed an almost exact 50/50 split between individual and corporate buyers in this quarter. The ongoing expectation that the individual buyers would far outweigh corporate ones, due to the relative numbers of each, does not manifest itself. All Media Enquiries Please Contact Doug Wiles, AIBB Client Services Officer on (02) or Australian Institute of Business Brokers All Rights Reserved. 12

14 AUSTRALIAN INSTITUTE OF BUSINESS BROKERS PO Box 576, Crows Nest NSW 1585 Freecall Phone Fax AIBB - Education & Training To Raise Professional Standards LINKEDIN Copyright 2015 Australian Institute of Business Brokers (AIBB) - All Rights Reserved. Important: This is not advice. You should not act solely on the basis of the material contained in this Newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This Report is issued as a helpful guide to members and Report subscribers for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval. 13