Australian Private Business Values December Qtr 2011–BizExchange Index latest results
The latest results from the quarterly index update are really nothing surprising but do highlight some significant trends for business owners:
The past year has seen a large rise in the number of businesses the sale particularly the number of smaller micro businesses. This may signal the arrival of the major wave of businesses for sale as a result of the baby boom business owners now moving into retirement (many put their plans on hold during the GFC).
The premium paid for larger businesses, particularly those in the mid-market ($5-$15 million turnover) has also softened. This sector is strongly influenced by equity markets with mergers and acquisitions the primary source of potential buyers. the drop in value of smaller businesses is directly linked to the growth in the number of low-end businesses on the market.
The volume of business owners considering putting their businesses up for sale is expected to continue to increase because even recent levels are well below the average volume required to transfer ownership from the baby boomers to the next generation as they move towards retirement. On the other hand if these prices continue them for some owners selling a business in this market ( for these prices) is simply not worth the effort.
An increasingly large number of businesses are now selling for less than one year’s earnings. Many may find it more financially rewarding to recruit a gen Y or gen X partner and invest in the development with a view to a more gradual transition of responsibility and ownership. Others simply continuing to work for as long as they can then walking away.
Listed Australian businesses will continue to have the opportunity to profitably finance their expansion by acquiring privately owned businesses at lower P/E ratios than they currently enjoy themselves – it is this practice which should underpin the value of larger privately owned businesses that have been well-prepared.