MARKET REPORT - MAY 2010

“You Have Nothing To Fear But Fear Itself.”

Market

We are experiencing a two-tiered market.  Quality businesses are in very short supply and are attracting keen competition from Buyers.  Businesses that are showing some decline have to be priced right to create interest.  Best quality businesses are in a Sellers’ Market, average to low quality are in a Buyers’ Market.

Supply - there is a shortage of businesses on the market at the moment.  This is normal at this time of year, as prospective Sellers wait until the end of the financial year, to get their accounts done and then place the business on the market.  We recommend that prospective Sellers should sell now!  Don’t wait for the supply to increase.  Meet the market now!  We can use year to date accounts to project this year’s trading.

Demand - Buyers are actively enquiring but they are a bit hard to satisfy and many are looking for the “perfect” business on the market.  Cautious Buyers are quick to identify the weakness of a business but slow at looking at the strengths or ways to improve the weaknesses.  There are some good deals out there at the moment.  Buyers need to look at buying a business as a long term investment.  If the business has the right fundamentals it can be shaped into the “perfect” business over time.  Buyers should be able to negotiate good terms at the moment for the “not so perfect” business.  Best quality businesses are meeting keen interest from multiple Buyers and Asking Prices are being paid through competition.

Business Performances - Most businesses that we are seeing have suffered a decline in sales and profits this year.  It is similar to the 2000/2001 year that was affected by the commencement of GST.  In 2002 and 2003, once trading performances got back to normal, we used to put a line through the 2001 year.  We disregarded that year from the performance trends when estimating future maintainable income.

It will be the same this time.  The good times will return and initially, there will be a period of good profits, due to less competition.  This is a time of opportunity for the astute and confident Buyer.

Time To Consolidate - Existing business owners should look at the opportunity to acquire, merge and consolidate with other businesses.  A loyal customer base, reliable and experienced staff, productive assets, saleable stock, alternative or secondary premises can provide immediate growth and strength to your business.

We advise you to talk to your Accountant or other professional advisors regarding your ability to acquire another business.  We can target a specific business for you or target a broader range.  We can act for you as a Buyers Agent to identify a willing Seller, value, negotiate, manage the contract, due diligence and settlement.

Vendor Finance - Sellers are becoming more accepting to providing some finance in the sale of their business. Buyers like dealing with such Sellers because it means that the Sellers have confidence in their business and the Buyers ability to perform. It also keeps the Seller attached to the business for advice into the future.