First of all, have a think about how best your own company can grow. Once you’ve got a plan and a framework for how best to achieve this you are in a better position to determine what kind of company you need to acquire (alternatively, you may find that internal/organic growth or growth through collaboration / strategic alliances is less risky or more profitable).
Here’s a list of 10 questions that you should be able to provide very detailed answers to before you head down the acquisition path:
- What are your key strengths, weaknesses, opportunities and threats? In particular, what do you need to have your opportunities come to fruition? Also, how do you mitigate against threats to your business?
- Imagine the future of your industry: How will it evolve? How will customer tastes change, how will suppliers adapt to suit those changes, what shifts are likely to occur in related industries, what new direct competitors are likely to emerge, how will customer needs otherwise be solved and what impact (if any) is government policy, technology or the environment likely to have?
- To what extent do you and your team have the right experience, skills and attitudes to capitalise on the opportunity? Can this be improved, and what external skill sets might you need to contemplate bringing in?
- How will you make money from the opportunity? How can you best set up this opportunity in a risk-averse way, then make money from it, and then continue to capitalise on it or build and maintain entry barriers?
- Look at the transaction process: How does the customer make decisions, is your service a compelling purchase, how much does it cost to reduce and deliver the service, how much support is required and how easy is it to retain the customer? What additional revenues or annuity streams can be obtained to improve cash flows?
- How would you strengthen your Value Chain? How can you ensure optimal performance from manufacturers, distributors, imports and exporters, wholesalers and retailers?
- What are the strengths and weaknesses of your current competitors? What resources do they control and how could you potential co-opt potential or actual competitors by forming alliances or otherwise collaborating?
- What financial projections do you have? What cash flow issues do you have particularly pertaining to investing in capital or personnel, or customer or supplier payment terms?
- What alternative scenarios could take place as you implement your plan? How would you cope with a best or worst-case scenario (e.g. the initiative is more / less successful than anticipated?
- What is your eventual exit strategy?
Despite some fluctuations, business sales in New Zealand remain relatively stable.
Recent data from a variety of external sources including BIZSTATS, Franchise New Zealand, The Australian, and ANZ, have reflects a dynamic market landscape with some developments in sales volumes, pricing and buyer behaviour.
Key findings include:
1. Business Sales Volume
In Q3 2024, business sales, aligned closely with the same period in 2023. Year-to-date sales volumes have now exceeded pre-pandemic levels, signaling increased buyer confidence and overall economic recovery (BIZSTATS).
2. Fluctuations in Business Valuations
Mean and Median Sales Prices: In Q3 2024, the mean sales price decreased to NZD 474,000, primarily due to fewer high-value deals exceeding NZD 1 million. Conversely, the median sales price rose from NZD 245,000 to NZD 260,000 quarter-over-quarter, indicating a slow but steady recovery in business valuations (BIZSTATS).
Seller’s Discretionary Earnings (SDE) Multiples: For the first time in over three years, there was an increase in the average SDE multiple, rising to 2.20x from 2.11x in the previous quarter. This suggests a potential positive trend in business valuations (BIZSTATS).
3. High Demand Amidst Economic Uncertainty
Despite economic uncertainties, demand for businesses has reached historical highs. In the twelve months leading up to the end of 2023, 16,951 confidentiality agreements were signed, a 30% increase compared to the same period the previous year. This surge indicates strong buyer interest, although actual business sales were down by 7% during the same period, attributed to cautious purchasers delaying decisions due to economic and governmental uncertainties (Franchise New Zealand).
4. Sector-Specific Trends
Retail Sector Challenges: The retail sector, particularly discretionary spending areas like jewellery, has faced challenging trading conditions. For instance, Michael Hill International reported a decline in New Zealand sales by 11.8%, reflecting the impact of economic factors on consumer spending (The Australian).
5. Economic Outlook
The ANZ Business Outlook reports indicate that firms are feeling the strain, with the services sector experiencing a slowdown as the economic deceleration broadens. This is part of the Reserve Bank of New Zealand’s plan to manage economic overheating post-pandemic (ANZ Bank of New Zealand).
These key insights suggest that while there is strong interest in business acquisitions in New Zealand, economic uncertainties and sector-specific challenges continue to influence actual sales and valuations, which are key points to consider when looking to sell your business. Keeping a close eye on these trends and sector-specific dynamics will help you to make informed decisions for your business sale in alignment with the current market environment.
*Data and information in this article were originally published by a variety of external sources and publications including: BIZSTATS, Franchise New Zealand, The Australian, and ANZ.
