It is easy to speculate that as a result of the far reaching and in many cases devastating effects of Covid-19 around the world, that any Kiwi business owner would be short-changing themselves by selling a business now. In fact, many business owners in New Zealand that we have spoken to are concerned that as a result of poor trading months post Covid they now need time to rebuild the value of their business before they can consider selling it. Interestingly, the facts don’t support this view, and to the contrary, we have entered a sellers’ market with business buyers flooding the market in record numbers.
If we unpack this it begins to make sense; we are in a period of increased job uncertainty, increased unemployment due to redundancies and an almost universal awakening to the frailty of our classic employer/employee economy. Many Kiwis are no longer willing to leave their future in other people’s hands and are attracted to the prospect of being in command of their own financial destiny. All of this, coupled with increasing house prices in many major centres (homes where equity can often be found), and historically low interest rates, we have the perfect buyer storm. And as if that all isn’t enough, consider the huge number of Kiwis returning home with their hard-fought wealth needing to provide both a home and an income. For these particular buyers a well-established business under management is a very attractive proposition, either to acquire in part or full. The quality of these business buyers coming back to New Zealand is remarkable. The only thing missing in all of this? Enough businesses to satisfy this genuinely insatiable demand.
Many business owners presume that poor performance, particularly the full quarter of April to June, will adversely affect value. The logic is sound and normally would be a fair assumption, however this situation is anything but normal. Covid has been largely eradicated in New Zealand and many businesses that have returned to pre-Covid trading levels can clearly demonstrate any downturn as a one-off or non-recurring event that would have no effect on value. A fair normalisation of the accounts will satisfy most buyers and therefore the value of the business is maintained. It would be no different than a retail business being affected by 3 months of road works that affected profit; the only loser is the current owner, once the road works have passed, it is business as usual.
There are undoubtedly many businesses that continue to struggle, and particularly in light of the recent outbreak in Auckland, have or will go out of business completely. These tend to be very sector specific. Obviously businesses relying on international tourism have been worst hit and sadly there is no easy solution in sight. But there are some surprising victors also, like the accommodation industry that is piping hot right now with government assisted guests and domestic tourism driving business values higher than normal.
The message is fairly simple, albeit counter-intuitive: 3 bad months trading won’t affect the value of your business if it appears to be returning to normal. Buyers are both well-financed and plentiful and it is not uncommon to have multiple offers on businesses being sold. It is indeed a strange time, but for those that are canny, now could be the time to sell.
The recent Covid outbreak in Auckland has certainly confused matters and will no-doubt spark furious debate about whether trying to eradicate the disease is actually the best approach. This will be exacerbated if the rest of the world does not attempt to eradicate it. If no vaccine arrives, do we keep our borders locked forever? What we do know for sure is many businesses will trade well regardless, and for those, the decision to sell will not be determined by a virus.
Aaron Toresen – Chief Executive Officer, LINK
To find out more about selling your business or to reach out to a broker, click here:
https://go.linkbusiness.co.nz/sellmybusiness/
