This week we decided that a post on multiples brokers and business owners are asking for the businesses that they have on the market. So what we did was visit all of the broker’s websites and spent 30 minutes getting a handle on where opportunities in the two important categories of Manufacturing and Import Distribution sat.

Now often when you do an exercise like this it opens up more questions than it answers and today was nothing new. I have to ask myself if some of the brokers actually want to sell the businesses they are currently marketing. There seems to be so many roadblocks in the way for a purchaser to have to navigate, and as such you wonder how any businesses get sold at all. Some of the notes on the ads were incredible:

For more information, please contact me to arrange a time to come to our office and sign a confidentiality agreement. Further information is by appointment only.

How easy does this make things for a qualified buyer? I understand that the RE model says to get people into your office so you can control the flow of the information and apply whatever pressure your company prescribes but how often does this ever work? And is it ethical? We have an on-line registration process and this allows an interested party the opportunity to complete an NDA on-line much like a software registration.

No profit/surplus shown but note that the business is reasonably priced

What does this mean to me? The vendor wants too much for the business so I won’t put a profit/surplus figure in the ad or no-one will call me. This might work if you are selling a house because people often buy on emotion, but a business?

The asking price: Present all offers.

What does this mean? We have set an asking price, we are not confident in achieving it, and if you don’t agree with it we will still present your offer no matter how stupid. Not much science or leadership involved in this methodology.

Price $500,000 plus stock

But there is no stock number. What happens if the business has $500k worth of stock and the buyer only has $750k to spend? Everyone’s time has been wasted.

Incredibly of the 60 business opportunities we found, that were Manufacturing or Import Distribution businesses, only 20 had both the price and either an EBIT or EBPITD figure. So only 33% of the businesses in these categories offer a buyer an opportunity to work out whether the business is positioned right for them.

The average multiple/cap rate on manufacturing businesses average 3 multiple/33.4% cap rate on EBPITD.

The average multiple/cap rate on Import / Distribution businesses 3.1 multiple/32.4% cap rate on EBPITD and 3.9 multiple/25.5% cap rate on EBIT.

Now I don’t disagree entirely with any of those cap rates/multiples necessarily except maybe the businesses with near on 4 multiples on Import Distribution businesses. I think in this market that that is probably too high but on the whole they are all in the ball park.

But what about the 40 that didn’t publish either a price or the EBIT/EBITDA number? They must be wildly outside of these levels or they would have been published. What does a buyer ask himself/herself when they see this practice? I know what I would do, I would move on to one that does. Some of the websites don’t even have the name of the broker that is handling the sale of that business. Is it because the brokerage doesn’t want to promote the brokers name? It is advertising 101 to have a call to action, but if I wanted to take that action, who would I call?

Another interesting opportunity had a value based on 2011 projections. There was no indication of how the business was travelling in the current 2009-10 year. I understand that there are always mitigating factors when setting a value on any business, and maybe this business has exceptional future prospects, but how can anyone set a value of shares in a SME in a recession on projections?

We only have one business on our website without a price and that is because it is an unusual offering and it is subject to offer. There seems no excuse for me though in these very popular categories, manufacturing or import distribution, to not have all of the relevant information available for buyers to apply to their personal situations.

The real world has moved on from the RE based brokerages and their practices. We are in an information based society now, buyers and sellers are more educated, more discerning and the late 19th century practices of being sales focused have drastically changed towards the more modern internet based practices of helping the buyer buy more easily. The internet makes information instant, but if your website doesn’t have the information interested parties want, when the want it, you are doing your Vendor clients a disservice.