Business Valuations Market Update 2016

“Cautiously optimistic” is a bit of an oxymoron – but a term that this author thinks is an apt description for the small business market, in Australia, at this point in time.  Australian Bureau of Statistics figures show that an additional 21,000 businesses (1% increase) were added to the total number of businesses in Australia over 2014/15.  Importantly, this net increase was just as much about fewer businesses closing rather than a large increase in new business registrations.  This is perhaps another sign that the Australian economy, and indeed small business performance, is starting to improve.

There are more purchasers in the market place and a generally improved purchaser sentiment.  Actual transaction activity remains patchy, though the States with stronger economies including New South Wales and Victoria on the whole appear to be performing better.  Brokers are consistently commenting that well priced businesses are attracting purchasers and selling – the challenge remains with getting a larger percentage of vendors, to list at prices that meet the market.

There are several factors that appear to be restricting stronger purchaser confidence as follows:

• The May budget – still no clear direction on taxation changes though looks increasingly likely that company tax may be reduced rather than personal tax rates – potentially positive for the small business market if this fact is confirmed.

• Probability of a July election – a Federal election and risk of change of Government always adds to uncertainty and reduced purchaser confidence.

• Unemployment – A slowly declining unemployment rate is favourable from an economic point of view – but can reduce the level of incentive for potential purchasers of small businesses to act (if they feel their existing employment is secure).

• Interest rates – remain low though probably now less chance of a further cut in interest rates.

Between June 2015 and March 2016, the Seek commercial website indicates that the total number of businesses for sale in Australia has fallen by 1% (see our Table below).  This really indicates no substantial change.  In summary, the market has improved slightly each year since 2013, though brokers are generally in agreeance that it remains a buyers’ market.

NUMBER OF BUSINESSES LISTED FOR SALE

This table reports the number of businesses listed for sale on the Seek Commercial website

having listing prices $50,000 or greater, excluding new franchises/ licences

Selling Times

Selling times remain at above long term averages, though have improved slightly over the past two years.  It is interesting to note that States with stronger performing economies and residential real estate prices, such as New South Wales and Victoria, are also faring better with selling times.  This is likely due to stronger purchaser sentiment where people “feel richer” when their house value is higher – they also have more equity with which to raise finance.

Over $800,000 Sector

Quality businesses in this part of the market are attracting more purchaser demand than other sectors.  Demand is coming from both private and corporate purchasers.  Consolidations by way of merger or acquisition is active in this segment.

Over $200,000 to $800,000 Sector

Still only moderate activity.  It is interesting to see some merger and acquisition activity starting to move into this sector as well.  Business owners are looking for an exit strategy and willing to consider all options to achieve a sale.

Under $200,000 Sector

Whilst this segment remains relatively quiet, well priced listings are attracting demand from purchasers as a replacement for salaried employment.