We head into a new financial year in New Zealand and leave behind the most incredible 12 months in living memory. With the global pandemic, sporadic lockdowns, no international travel, rocketing house prices, new government policies introduced, and new taxes implemented, we have certainly had a tumultuous ride. The tourism industry, and in some cases, entire tourist supported towns (think Queenstown) have been shaken to their core with no clear respite in sight. On the other hand, many motels owners, despite the lack of international tourists, have their rooms at 100% occupation due to government temporary housing initiatives (some contracts are several years in length, but come with other issues). The stark contrast of these industries epitomises the SME landscape in New Zealand, there have been some winners and some losers from this pandemic. Our hospitality industry has been incredibly hard hit, and in particular, the inner city cafés bars and restaurants that have faced increasing costs and reducing patronage as well as being the first affected by lockdowns.
One interesting dynamic though has been the historically low interest rates, ease of borrowing against business acquisitions and relatively high job insecurity. This has seen a huge increase in the number of buyers considering acquiring a business. A significant shortage in quality, profitable businesses means a historically low time on market for these businesses and an increase in average value.
New Zealand heads into an interesting time as the government recently announced a raft of measures to cool the housing market (and in particular speculators) and provide more opportunities for first time buyers. Some of these measures, such as an increased bright line test and the extraordinary move of removing the ability to claim interest on investment properties, will see considerable funds move away from housing into other asset classes. For business owners this means even more potential buyers in an already hot market.
While a business producing a genuine return to a working owner over $100,000 will likely sell very quickly, any business producing returns over $300,000 with a strong story around its future maintainable earnings will likely receive multiple offers in our current market.
Business values are trending upwards slightly based on this extraordinary buyer demand. There is currently a perfect storm for business owners looking to exit. The key however will be to move sufficiently quickly to benefit as one thing we have learnt is that nothing is certain. The long predicted surge of businesses coming to the market is yet to eventuate in real numbers, but every statistic suggests that it is very close. So business owners looking to exit should ensure they move now and not risk missing this purple patch. As Americas Cup Helmsman Jimmy Spithill is noted for saying “You can be a rooster one day and a feather duster the next.”
Contact LINK to find out more about selling your business or to reach out to a broker.
