Waikato Business News September/October 2020

4 WAIKATO BUSINESS NEWS September/October 2020
Buyer demand for businesses
riding high
By RICHARD WALKER
Waikato businesses are riding out the
pandemic so far if business buying and
selling is anything to go by.
There is no sign of distressed
business sales,
and instead Waikato
brokers are keen to build up
their stocks as they see strong
demand from buyers, fuelled
partly by returnees from
overseas.
The makeup of those both
buying and selling is largely
unchanged from pre-Covid,
with no more Aucklanders
than usual snapping up
Waikato businesses and the
bulk of activity being driven
locally. Some returning New
Zealanders are also getting
into the market.
Demand is high and prices
are holding, according to
both ABC Waikato business
partner Scott Laurence and
LINK Waikato director and
broker Rick Johnson.
Laurence says during the
lockdown, the ABC team
wondered how the year
would develop, and envisaged
a number of distressed
businesses having to sell.
“And we haven’t listed
one of those yet. Whether
that’s because of the wage
subsidy or whether it’s
because of the resilience and
the strength and the ability to
adapt to business owners, we
just haven’t seen those businesses
that have fallen over.”
That comes with the rider
of the difficult times faced by
some tourism operators.
Instead they are seeing
high levels of buyer interest
from new and existing clients.
Laurence says inquiries
are coming from existing
business owners looking for
acquisitions, from people
facing redundancy or wanting
to leave their corporate job,
and some from New Zealanders
returning from overseas.
Interest from Aucklanders
has been at similar levels pre
and post Covid.
As high demand holds,
the message ABC wants to
send potential sellers is that
they will get a good price for
their business.
Similarly, Johnson sees it
as a seller’s market. “The big
thing at the moment is that
LINK have the most registered
buyers on our database
that we’ve had in our 20
year history.”
We’re actually
recording multi
offers on a number
of the businesses
that we sell - a
higher level of
multi offers than
we would have
experienced
previously, so we’re
really seeing it as
a good time to sell
a business at the
moment.
As with ABC, he says some
of that comes from redundancies,
but Kiwi expats are also
fuelling the numbers.
“Interest rates are at a
record low, so those that can
access money do have the
opportunity.
“We’re actually recording
multi offers on a number of
the businesses that we sell -
a higher level of multi offers
than we would have experienced
previously, so we’re
really seeing it as a good
time to sell a business at the
moment,” Johnson says.
He thinks some potential
sellers might be deterred by
the prospect of a lower price,
due to lockdown affecting
their business’s revenues and
profitability. But he says if
vendors can show volumes
have returned to normal, then
Covid’s impact doesn’t have
to affect the price they can
realise for their business.
“Definitely in those manufacturing,
service type sectors,
the business owners are
reporting good levels of trading
and, in some cases, stronger
than last year.”
Laurence says ABC are
also seeing multi offers, and
like Johnson notes all-time
low interest rates, adding
there is uncertainty around
the sharemarket and people
have realised during Covid-
19 there is also some risk in
commercial property.
He says typically a business
will offer a working
owner between 25 percent
and 40 percent return on
investment.
ABC broker Tony Begbie
says businesses with a recurring
income are always popular
with buyers. That includes
subscription-based businesses
like gyms, security
businesses with alarm subscriptions
or IT businesses
with software subscriptions.
He says people are also
always looking for import
and distribution businesses.
And typically they want to
Rick Johnson
see consistency of revenue
and profit, with potential
for growth. Also on buyers’
minds is the question of how
difficult the business is to
learn and understand.
As for those selling, both
ABC and LINK are seeing
little demographic change pre
and post-Covid. Baby boomers
were already beginning
to exit and that is continuing,
but they say vendors come
from all age groups.
When it comes to buyers,
Johnson says the lockdown
acted like a Christmas
break. “A number of people,
I think, used that period to
reflect and say, ‘What do I
want to do? I’ve had this role
for 10 years, but my passion
lies over there, perhaps it’s
time to have a look and follow
my passion.’ So that’s
where I think those buyer
demographics are coming
from. And we’re not seeing a
Tony Begbie
specific age group. It’s spread
across a reasonable range.”
In the area of mergers
and acquisitions, Johnson
says he is seeing similar
levels of activity to pre-
Covid. “Waikato businesses
are incredibly successful,
and always looking for
opportunities.”
One of the biggest challenges
for potential buyers
is access to finance, Johnson
says, even those with a reasonable
amount of equity.
“The banks have been cautious
and understandably
so, as they look at their
own books. There’s been
some commentary out of
the Reserve Bank, and the
government, around wanting
banks to actively lend
money now.
“The attempts to get banks
to loosen up a bit, we’re seeing
it very slowly evolving,
not as fast as a lot of our
Scott Laurence
buyers would like to see.
And I’m sure banks have
got valid reasons for that.
But it’s certainly something
we’d like to see occur.”
As activity stays strong
in the region, LINK
Waikato are recruiting two
new brokers while ABC’s
Waikato branch are finalists
in November’s real estate
awards, for Small Business
Broking Team of the
Year, and have again been
the best performing office
within ABC nationally,
winning Regional Branch
of the year. ABC business
partner Greg Dunn says the
company is now getting
into corporate advisory,
business syndication, and
has an agri-specialist in the
Waikato office.
“Waikato continues to
be a prosperous place that
people want to do business
in, and want to come to.”
Bank sees solid performance tempered by
uncertainty
Waikato businesses
across a range of
industries are performing
well, though uncertainty
over the future is
making it hard to plan. The
biggest challenge for most
businesses is the need to
factor in multiple scenarios,
Westpac Waikato area commercial
manager Hamish
Ward says.
“In general, across the
range of industries, things
are going pretty well - barring
hospitality and tourism
for obvious reasons.
“In terms of all of our
other industries, they’re
actually performing very
well at this point in time.
There is a little bit of increasing
nervousness, because
the future is very uncertain.
It’s very hard for businesses
of all scales to plan at the
moment. That’s probably
the biggest challenge that
every business is having -
just being able to sit down
and plan for their business.
They have to have multiple
scenarios and plans.”
Ward says with
owners tending to be internally
focused on their Covid
response, the bank is seeing
no more than normal activity
in terms of buying and
selling businesses. Similarly,
he has seen no increase
or spike in the number of
businesses falling over.
When it comes to banks,
he says they have plenty of
capacity to lend.
“Liquidity is not an issue
at all. There’s plenty around,
and I think the Reserve Bank
are doing a really good job
of making sure that there’s
liquidity there.”
That’s not to say, however,
that things are unchanged.
“Are we more cautious
than we were six months
ago? Probably we look at
things a bit closer. The future
is more uncertain than it has
been. Our due diligence and
financial analysis, especially
of the forecast, we are putting
more time into that, as
are professional advisors like
accountants and lawyers.”
Lockdowns also now
needed to be factored into
future forecasts. “A common
question for us to clients now
is, how does your business
perform during lockdown at
each level? Six months ago,
we weren’t asking that question,
obviously.
“Now it’s the prudent
thing to do - for us as a bank,
but also for the customer.
They need to have absolute
confidence that their business
can sustain alert levels
1, 2, 3 and 4.
“The other complicating
factor is, we don’t believe
rescue packages from the
Government are going to
be sustainable. So you need
to take that into consideration
as well. We need to
acknowledge that has been
a big help for a lot of businesses.
Equally, there’s a lot
of businesses that have taken
on those rescue packages
that probably didn’t need
it. And the big challenge
for us as a bank is looking
through those support
Are we more
cautious than we
were six months
ago? Probably we
look at things a bit
closer. The future is
more uncertain than
it has been.
packages and looing for the
true underlying performance
of the business.”