There hasn't been a blog post in a little while because all my recent articles have been snapped up by the media and can be seen on our Media page.
Things are certainly a little slow right now in the business sales market. Have talked to a couple of brokers I know and they concur that things look like they could be a little quiet all the way to Christmas. One of them said he thought that it was the country’s total dedication to the World Cup, and in his mind has delayed the normal spring time interest for business owners to look at exiting their businesses.
This concept I believe has merit because it does seem to captivate most of our nation, and maybe the prospect of a World Cup being held in NZ has temporarily dulled the normal motivators to business owners to look to sell. Most years when the days start to get longer we get a rush of business owners start to make contact because to most spring means change.
The interesting thing this year is we just can’t seem to get the owners we are talking to motivated to act and maybe it is as simple as they are more interested in the World Cup.
Can’t see it improving after the World Cup either really because then we head into an Election period. I would assume that most business owners would hope for an election that keeps the status quo but again the uncertainty again will most likely mean that owners who would normally be looking to exit for family, health, age or as simple a reason as boredom will most likely be caught up in the World Cup and Election year malaise.
On the opposite side of the coin we all are seeing significant buyer interest. There seems to be a growing sense of frustration in the buyers I talk to, especially around the quality of the businesses that are on the market. I suppose difficult times bring out the worse in any business category and business brokers are not exempt from this. If there is nothing on the market then less scrupulous brokers will be tempted to market businesses that they might not normally and hope that desperate buyers might not be as diligent in their DD processes.
Had a buyer in our boardroom yesterday who took a call from another broker who informed him that the owner and he had been able to update the financials he had been given and they were emailed through to him. The update was the 3rd or 4th revision of actual management accounts, all revisions were supposedly due to honest mistakes but all indicated an owner and broker trying to justify a price. One of the revisions was required because the rent for the current year was keyed in to the accounting system exactly half of the previous year. Another we saw recently had all staff wages added back because it made the business look unprofitable.
We have happily lost a couple of smaller opportunities to other brokers over the last couple of weeks and neither decision was based on fees but more on the price the broker was willing to go to the market at. In both cases the businesses were barely profitable and after we had appraised the businesses we explained to the owners that the sale price would at best be the value of fixed assets and stock. The businesses in question are now being marketed by our competitors between 30-50% higher value than we believe is attainable, one with a profit figure quoted higher that shown on the financials we were provided with! This is most likely telling the owner what he/she wants to hear and then if an inexperienced buyer doesn’t turn up, position the owner hard during the process to get his/her expectations down to where the market stands.
Experienced finance writer Martin Hawes has previously identified similar behaviour among real estate agents, who appraise a house at a high price to get the listing, only to then set about lowering the vendor’s expectations.
This is certainly not sour grapes on our part. Both Paul and I would rather go and play golf than waste our time, and the buyer’s time, marketing something that is significantly over priced. Just not worth the drama.
This is a risky ploy for the broker if you want to stay in the game long term. Buyers in the most part don’t respond to obviously overpriced opportunities.