aibb small business sales index - Australian Institute of Business

AIBB SMALL BUSINESS
SALES INDEX
THE STATE OF THE AUSTRALIAN MARKET
JUNE 2014 QUARTER
SEPTEMBER 2014 QUARTER
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WHAT IS AN AUSTRALIAN PRIVATELY HELD BUSINESS REALLY WORTH?
Any examination of the real value of a privately held business in Australia must consider the value that
comparable businesses have actually sold for in the current market.
The Small to Medium privately held business sector represent
over 95% of all businesses in Australia and equates to a Trillion
dollar investment by individuals and Australian families in their
financial future.
Basing the hypothetical value of a small to medium businesses
on business listing prices, unsubstantiated formulas or
anecdotal evidence without consideration of the part that the
“market” plays in setting prices is ignoring the facts.
BizStats™ is a secure database record of settled privately held Business Sales in Australia which is
owned and administered by the Australian Institute of Business Brokers. It is the largest database of
completed private business sales in Australia.
Data is obtained from information supplied by the
Institute’s professional Business Broker Members
nationwide who facilitated the sale of A$3.4 billion*
in settled private business sales in 2012.
The Institute surveys all Members across Australia on
a weekly basis to ascertain the state of the market at
that point in time. This is reflected in real time on the
Institute’s website at www.aibb.com.au by way of the
Market Indicator Gauge.
Screenshot of the AIBB BizStats database
During the 2013* calendar year, AIBB Accredited Business Brokers across Australia achieved the
following KPI’s:
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AIBB Members wrote nearly 2,000* Business Sales Contracts
AIBB Members made average Business Sales of A$6,469,927* per Broker
AIBB Members collectively wrote over A$ 2 Billion* in Sales
AIBB Members interviewed over 90,000* Buyers in Face to Face meetings
AIBB Members evaluated over 82,000* Businesses offered for Sale
88.5%* of AIBB Members referred Clients to other Service Providers eg, Finance, Accounting,
Legal and Insurance etc during 2013
For more information about the real values of Small to Medium Businesses in Australia please contact
your local AIBB Business Broker. A full list of Members is contained on our website at:
www.aibb.com.au
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* Figures extrapolated from respondents to the Members Survey 2013
AIBB™ AND THE QUARTERLY SURVEY
The Australian Institute of Business Brokers (AIBB™) is the peak industry body in Australia
representing professional Business Brokers engaged in facilitating the transfer of Ownership in SME
businesses since 1989.
The Institute conducts quarterly surveys of its members across Australia in July, October, January and
April each year to determine the State of the Small to Medium Business marketplace as its Members
are ideally placed to provide an accurate assessment of Market Conditions in this sector. AIBB
Accredited Members showcase their client’s businesses using the Institute’s proprietary website,
www.aibbsales.com.au where over AUD $7.9 Billion of pre-qualified businesses are availabe for
immediate purchase.
Actual sales data is drawn from the Institute’s proprietary BizStats™ database of completed business
sales which records details supplied by its Members of completed private business sales across
Australia.
In addition to graduation of the mandatory Certified Practicing Business Broker (CPBB™) training
program required for AIBB Membership, the Institute offers advanced training for members to qualify
to become AIBB Registered Business Valuers (RBV™). RBV™ graduates have gained recognition from
Government, Financiers, the Courts and Industry stakeholders as being professionally competent to
provide Expert Reports of real business values of SME’s in Australia.
SUMMARY OF THE SEPTEMBER 2014 QUARTERLY SURVEY
The relative stagnation noted in the March 2014 survey appears to have continued, with perhaps a
slight dip appearing in the September 2014 quarter. This is usually an “upswing” quarter, as businesses
enter the new financial year, but economic instability may have dampened that. Sale prices have
generally remained the same, but half the respondents indicate that businesses are taking longer to sell.
Availability of finance is still a challenge and in many cases, vendors’ financial performance does not
reflect their pricing expectations.
“Some optimism is there as regards the potential success rate, with respondents expecting that it will be
“easier” to sell businesses next quarter however, the number of qualified buyers has fallen” commented Vic
Whitely, Director & National Treasurer, AIBB.
Retirement continues to be the main reason given by sellers, but this reason sometimes dampens
the sense of urgency to sell. The general expectation and, possibly, hope is that there will be a slight
improvement in the next quarter.
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AIBB MEMBER SURVEY DEMOGRAPHICS
All States & Regions were
represented in the responses
to the survey with participation
proportionate to state membership
and population demographics
consistent with previous surveys.
BUSINESS BROKER COMMENTS
Notable comments made by AIBB Business Brokers for the September 2014 quarter included;
“Overly cautious and influenced by negative political and economic media comment”
“Slow, buyers are very nervous”
“Many small businesses are trying to sell, however due to the number of hours they work and the lack of
profitability, buyers are difficult to find”
“Tough buyers market with scarcity of quality listings available”
“More inquiry, although owners are not putting good businesses on the market”
“Extremely Tough as vendor expectations are for too high a price and too few buyers to create competitive
tension”
“There is significant appetite for solid, profitable businesses showing signs of growth, however, these
businesses seem to be very rare. Many large businesses (i.e. turnover $1m+) seem to have contracted over
the last 3 years making it a difficult proposition to achieve an acceptable sale price”
“There is continuing caution by lending institutions. Reasonable enquiry level but pricing expectations
between vendor and buyer is remarkably different”
“Buyers are still cautious and looking for a bargain, but good well priced businesses are still attracting
interest”
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THE STATE OF THE MARKET IN
AUSTRALIA - THE FACTS
At the end of the September Quarter the market indicator gauge (available for real time review at
www.aibb.org.au) remained in the Buyer’s Market section of the Market Sentiment Gauge nationally.
Sentiment, however, was not uniform across the nation. The Eastern seaboard States each registered a
slight improvement in market sentiment over the previous quarter while WA remained unchanged and
SA retreated from a marginal Sellers market to a Neutral position.
Buyer’s Market Indicators:
(a) Where there are more Sellers looking to Sell businesses than there
are Buyers looking to buy businesses.
(b) Buyers have a lot of choice between similar businesses
(c) Buyers are making offers lower than the asking price.
(d) When there is generally only 1 genuine buyer bidder per transaction.
Market Sentiment (Australian Average)
Seller’s Market Indicators:
(a) Where there are more Buyers looking to Buy businesses than there are Sellers looking to sell businesses.
(b) There are very few similar businesses on the market at the same time.
(c) Businesses are selling at or above the asking price.
(d) When there are generally multiple genuine buyer bidders per transaction.
Screenshot of the State-By-State Market Sentiment Guage at close of the survey
AIBB’s 300+ professional Business Brokers across Australia are polled weekly to provide input on activity
by Business Buyers & Sellers. This gauge (above) indicates Real Time market activity across all sectors of
the economy in the SME marketplace in Australia.
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Number of New Listings
For the September quarter, 33% of
brokers reported an increase in the
number of new market offerings, with
24% indicating that there had been no
change.These two numbers continue
the trend from the previous quarter,
demonstrating that more sellers are
keen to sell. Respondents showing
a few more listings came in at 24%,
however this was matched by those
who reported less.
This could indicate a shift in market
share by brokers.
Changes in Sale Price
As with the March quarter, the
response of little or no change
was recorded, followed by
those that he average sale price
had dropped.
This again indicated that sellers
were keen to meet the market.
Time Taken to Sell
Businesses
In this quarter, 43% of AIBBB
business brokers responded that
businesses have taken about the
same time to sell as the previous
period, with 50% responding that is
taking from a little to a lot longer.
This again reflects buyer caution,
access to finance and economic
uncertainty.
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Success Rate in Selling
Businesses
The September quarter sees the
same to a “little higher” success rate
over the previous quarter, with 42% of
brokers suggesting no change and 28%
responding that the rate was higher,
indicating that a rate of optimism is
now creeping in.
Number of Qualified Buyers
The number of qualified buyers
continues to fall from about the same as
the previous quarter to a lesser number,
with 8% responding that there are
significantly less buyers. Only 27% say
there are a few more buyers.
Factors Restricting the Ability
to Sell Businesses
The responses from AIBB Brokers
indicate that the main factor in this
quarter in restricting the sale of
businesses is the lack of availability of
finance.
There is a marked increase over the
previous quarter in this factor.The
second factor is the availability of new
listings, followed by economic conditions.
Again, market expectations are still not
being met by sellers’ desires.
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Access to Finance
No change from the March
quarter, with banks still being
cautious about business lending.
Approximately 10% say it is a little
easier, however the lack of sellers
having credible business plans
and market forecasts still tips the
balance in the favour of lenders.
Outlook for Business Sales
There has not been any general
improvement in outlook over the
previous quarter; however 30% of
respondents expect that it will be
easier to sell businesses over the
next quarter, so there is a slight
increase in bullishness.
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Buyer Demand for Individual Businesses
During the September 2014 quarter, which reflects the start of the new financial year, the sectors
that showed slight increases were Food/Hospitality, Franchising and Services, along with Professional
businesses.
Retail, Accommodation/Tourism and Home/Garden continued to be in the doldrums, possibly due to
the fact that this is the winter period. The automotive sector continues to be depressed.
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Multiples for businesses sold for less than
$250,000
The ‘buy yourself a job’ segment
We surveyed AIBB brokers on the multiples of earnings
that businesses sold for in the September 2014 Quarter.
For businesses that sold for under $250,000 (excluding
real property), the multiple ranges of Adjusted Net
Profit (PEBITDA) leaned towards the middle range.
1 to 2 times PEBITDA was the far and away the primary
indicator, with 73%.The next highest was less than 1
times, followed by 2 to 3 times.
Multiples for businesses sold between
$250,000-$1,000,000
The mainstream small business segment
We surveyed AIBB brokers on the multiples of earnings
that businesses sold for in the September 2014 Quarter.
For businesses that sold for $250,000 - $1,000,000
(excluding real property), the multiple ranges of
Adjusted Net Profit (PEBITDA) were spread.
The survey indicated that activity centred around the 1
to 3 PEBITDA range, with the main area being 1 to 2
times, closely followed by 1 to 3 times, which is similar to
the previous quarter.This could indicate some optimism
by buyers, who may be prepared to may be inclined to
pay more for businesses with growth potential.
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Multiples for businesses sold between $1.0$4.0 million
The elite small business segment
As the size and value of businesses increase, the basis
of their valuation typically changes from earnings figure
before the owner’s salary (PEBITDA), to an earnings after
market-based remuneration to the owners. We have used
EBITDA – Earnings before Interest,Tax, Depreciation and
Amortisation – to reflect this.
The most common multiple to reflect this was 2 to 3
times earnings, followed by 3 to 4 times earnings, which is
a similar spread to previous quarters.
We continue to see sellers and their advisors confusing
the earnings figure on which to value their business and
ignoring the Return on Investment and the influence the
market has in setting the price.
Multiples for businesses sold for more than
$4.0 million
The lower middle market segment
For the lower mid-market segment of business sales the
market range continues to be diversely spread, as these
sales are invariably B2B sales, where the focus is on what the
business is ‘worth’ strategically to the acquiring party, rather
than to the market as a whole.
Typically, lower mid-market businesses trade at higher
multiples than the elite small business sector, reflecting the
strategic nature of acquisitions.
However, the September 2014 survey indicates more of
an even spread, with less than 2 times, 2 to 3 times and 3
to 4 times of Adjusted EBITDA reporting almost the same
percentage.
However there were also a very large percentage of ‘Not
Applicable/do not know’ responses, which may tend to
question the veracity of some of the data in this sector.
Either traditional trends have not been followed, with some
‘panic’ selling taking place, or further research is required
with comparisons in future surveys.
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Reasons For Sale
Once again, the overwhelming reason
for selling businesses was retirement.
No other reason comes close to this. It
continues to indicate retirement of the
Baby Boomer generation and caution
about economic and trading conditions.
Location of Buyers & Sellers
The survey indicated that 93% of buyers
came from the same home state as the
sellers.
Once again, a very small percentage
was from overseas. Sellers should not at
this stage consider that there are a large
number of potential overseas based
buyers who would look at buying their
business.
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Who Are The Buyers?
The survey once again showed an almost exact
50/50 split between individual and corporate
buyers in this quarter.
The ongoing expectation that the individual buyers
would far outweigh corporate ones, due to the
relative numbers of each, does not manifest itself.
All Media Enquiries
Please Contact Doug Wiles, AIBB Client Services Officer on (02) 9431 8679 or [email protected]
© Australian Institute of Business Brokers 2015. All Rights Reserved.
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