We are a couple of weeks away from the end of the first 6 months of the 2010-11 financial year and I wonder how business owners are feeling now compared to the 1st of April. Most people we speak to seem to be more positive, despite the rainiest month or so I can ever remember. My golf clubs have been sitting unused in the back of the car for weeks. The feeling definitely has improved but no-one can really put their finger on anything concrete.
Things have certainly picked up for us with 3 businesses going unconditional this month and with 2 more very close. A good range of sizes as well, with the smallest around $200k and the largest north of $2m enterprise value. The interesting thing though is how these businesses purchases are being funded with the last 4 we have completed 50% have had to borrow and 50% are cash purchases.
We have been very surprised with the improvement in the Bank’s appetite for lending again. One of the businesses was a distressed business that had turned things around but only showed 5 months of good numbers but the Bank lent against that. Security was obviously on the purchaser’s property but I don’t think that deal would have happened 6 months ago. That I feel is a real tangible change in our market.
One of the businesses was a very niche operation, albeit with excellent current and future prospects, which had no assets, no staff, no stock, no debtors and no requirement for premises and we could have sold it 3 times over. There was one party who called me every two days through the Due Diligence period to see how the deal was going to see if he could jump in. He was offered the business at the same time as the eventual purchaser but failed to listen to my warning that another party was equally interested, thinking that was merely broker talk, and didn’t get an offer to the table for consideration. Another party had tried to lowball the vendor and was turned away and after looking at a series of other businesses realised the error of their ways and tried to re-engage but were by then too late.
Moral of the story is to listen to the broker because a good business will always sell no matter the business climate.
The time taken for Due Diligence on these transactions has been significantly longer than in previous times. A large part of that is, as I mentioned in my last post, because of the legal eagles dragging the chain but everything seems to take longer. One of the transactions was signed on or about 13/6/10 and went unconditional last week which is nearly 3 months. This on a $300k deal seems a little over the top, but it is what it is and we are glad that it finally completed.
Forward enquiry is also pretty strong with possibilities of an Aluminium Product Manufacturing Company, a Communications Hardware Company and hopefully a large Training Organisation all on the horizon. Hopefully also there will be a little less rain in Auckland and the Coromandel and I might be able to get on the course. See you soon.