Buyers face a lengthy wait

Martin Gummer is selling his bakery. Photo / NZ herald

Business brokers say they cannot find businesses to sell for love nor money.

Owners of small to medium-sized enterprises (SMEs) are sitting on their hands and waiting for the effects of the recession to subside, in the hopes of getting a better price once their balance sheets improve.

Meanwhile, brokers say they have queues of cashed-up buyers waiting for an opportunity.

Broking firm Switch Business has been advertising for the past month for businesses with ebit (earnings before interest and tax) of between $1 million to $7 million, with no joy.

Co-owner David Newport said the firm had seven to 10 buying groups on its books. "One significant company wants to spend $30 million on a tourism business in New Zealand or Australia and we can't find one."

His partner Paul Devcich said they had just put one $2.5 million firm on the market and "we've got people biting our arm off to try and get information on it".

SME owners' professional advisers were telling them to sit tight and wait until profits returned to the levels of two years ago before selling, the pair said.

But demand was currently holding prices up. In addition, buyers out there were genuine. Whereas five years ago banks would finance deals up to 120 per cent, now they would lend no more than 50 per cent, meaning potential buyers needed cash.

"If someone's looking in this market, they can do the transaction," Newport said.

If business owners all held on there would eventually be a glut on the market. An ASB survey last year showed that 25 per cent of business owners wanted to sell in the next five years.

"What prices will they achieve [for their businesses] and who's going to buy them?" he said.

Steve Smith, managing director of business broking firm ABC, was sceptical about a rush of baby boomer SME owners looking to cash up and retire. That had been talked about for years and "it's never eventuated".

However, it was true that business owners were currently sitting it out, even though demand was outstripping supply.

"They might not gain any more by doing that, they might have a better opportunity to exit now for a better price band."

As long as a business was marketed properly "that scarcity factor will probably give them a surprise on what they are going to get for it".

Business broker Clyth McLeod said no one knew when the effects of the downturn would truly be over. "We think that this situation is not going to change and if they don't sell now, they're probably looking at another two to three years."

However, he also did not believe there would be a glut of businesses on the market.

"If they've hung on that long they'll hang in there to recoup their losses or at least repair their finances and enjoy the good times for a while."

That is leaving keen younger buyers frustrated. One 40-year-old Aucklander told the Herald on Sunday he had been actively looking for a business since August.

With a background in technology and management, he wanted an infrastructure services and/or import distribution enterprise in the North Island worth about $1.8 million. He required some finance but had found banks "really good".

He had come close on a couple of deals. "On one particularly, the profit it was turning was phenomenal and it was outside my reach."

He had found older business owners were holding on. "I never thought it would take this long."

A good time to move on

North Shore bakery owner Martin Gummer says now is a realistic time to sell his business.

Bakers Harvest employs about 30 staff and supplies products to 200 wholesale customers.

He is looking to sell the company to a German buyer who previously lived in New Zealand and wants to emigrate here, but there has been interest from the local industry as well.

Gummer says even though baked goods are relatively recession-proof products, the business khas been on a recovery path in the time that he has owned it.

It achieved a 40 per cent increase in sales last year. "But then we needed to."

Financing costs have been high, he says.

"It's just at a point where it's now more attractive to a buyer than it's been at any other stage during my ownership.

"It was just a realistic assessment of where the business is at and the ongoing funding costs."