If you are in your 50s and 60s and trying to sell your small business, join the ever-lengthening queue. Never before have so many tried to sell so many nest eggs at such short notice.
There are a record 41,200 businesses for sale across Australia as at October 2014, the BizExchange Index shows; a 23 per cent rise on the preceding quarter.
Many point the finger at one group: ageing business owners. There’s an oversupply of desperate “seniorpreneurs” flooding the market with the nest egg they created and nurtured over 30 years.
Retirement is the overwhelming reason for selling businesses.
“No other reason comes close to this,” says the Australian Institute of Business Brokers, which publishes quarterly trends on business sales.
Its September report says there are $8 billion worth of pre-qualified businesses available for immediate purchase.
Kerry Boulton, chief executive of The Exit Strategy Group, says the demographics don’t lie: there is a bubble of Baby Boomer buyers trying to shift their small businesses and “nowhere near enough Gen Y coming through to buy them out”.
“They’re all trying to cash out and attract the same pool of buyers, resulting in massive downward pressure on price. It’s a sad outcome for many business owners,” Boulton says.
Boulton believes the answer is to revive the management and leveraged buyout methods which proliferated in the 1980s and 1990s.
Buyouts almost invariably come with vendor finance attached, allowing the buyer to pay parts of the purchase price on completion of the contract and the balance afterwards.
Boulton says she had originally run a division of conglomerate Mayne Nickless and instituted her own buyout afterwards.
It took about 18 months to achieve.
“It doesn’t have to be stretched out. The employees taking over can set the time frame and the owner quickly reaps the benefits,” Boulton says.
AIBB chairman Graham Long says management buyouts are one way forward but business owners can sell outright; become investors with others in management roles and/or elect to transfer to family members.
“The view that all Baby Boomers will elect to sell reflects a more narrow view of the options available to business owners,” Long says.
While the AIBB barometer is swinging heavily towards too many sellers and not enough buyers, Long says certain markets segments are enjoying the reverse.
The middle and top ends of the SME market are selling well but there are “a lot of businesses trying to sell which are poorly priced or just not viable or saleable”.
So what are the top and bottom ends?
Tony Arena, of Sydney-based BCI Business Brokers, rejects the notion that it’s a buyers’ market.
There are always more buyers than sellers, he says.
There is a glut of retail, food and hospitality businesses which have difficulty selling. Gift shops, video shops and bookshops are among this group; indeed most independent boutiques continue to be overwhelmed by major supermarkets and retailers. But when it comes to gyms, insurance brokerages, property management/real estate businesses, the buyers are swarming.
“Some of the most successful ones can name their price,” Arena says.
The same goes for fast food/convenience stores. He mentions the Oporto and Subway franchises as well as 7/11 convenience stores.
Among the biggest buyers are “migrant buyers”; new arrivals to the country, either family or friends who club together to invest in franchise-style businesses, Arena says.
Greg Hocking, who organised a management buyout of his own Hocking Stuart real estate franchise in Melbourne, says an MBO was an ideal way to sell a business that he had been running for more than 20 years.
In 2009, he sold the business to his nine best franchise partners. The business has been thriving ever since.
Hocking says that an internal sale means the deal becomes more about numbers and less about questioning the integrity of the business.
Indeed, because the buyers knew the business, the process tends to be much smoother than with an outside buyer who may or may not have knowledge of the industry.
As well as this, an internal buyout causes less ruction and fear among staff.
“We originally thought of simply taking a less than controlling interest and then selling out completely over a period of three to five years, but in the end they wanted full control,” Hocking says.
To create competitive tension, Hocking also brought in a viable outside buyer.
“It was done purposely to keep the prospective franchisee buyers on their toes,” he says.
Hocking was lucky: the deal was agreed on before the GFC in 2007 and he achieved “a pretty good multiple”.
“The staff were on board from day one because they knew [the] guys taking the reins. There are a lot of pluses you don’t have from an outside buyer – they always think they can do things better – and, invariably, always put in their own management and set about cutting costs.”
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