Sales of businesses in the $5 million to $20m mid-market are showing strong signs of recovery.
Nick Den Heijer, head of business sales at business advisory firm Staples Rodway, said deal numbers were up, and so were the multiples of operating profit which buyers were willing to pay.
Den Heijer says the mid-market business is the backbone of the economy, but the deals fell off a cliff after the Global Financial Crisis (GFC) struck in late 2007 and early 2008, and are only now returning to health.
"Before the GFC, it wasn't uncommon to see multiples around six to seven times for middle market businesses," Den Heijer said.
"Most business owners wouldn't consider a business sale for less."
Before the economic downturn there was also no pressure to sell. "People felt the good times would be here forever," he said.
Bank funding was easy to get. But after the crisis, banks cut back on lending, and as a result the multiples buyers were able and willing to pay "dropped savagely", often halving, he said.
Faced with such poor offers, business owners who had to sell saw "massive value destruction" when they sold.
But most rode out the economic hard times until prices for businesses improved.
Survival meant making their businesses more efficient and paying down debt, Den Heijer said.
Five years after the crisis, business owners, especially the baby boomers, were looking to sell, while others wanted to buy to drive growth.
"It's been hard to grow organically in a market which is only growing by a couple of per cent a year.
"It's hard to deliver 10 per cent to 15 per cent without acquisitions," he said.
As a result there had been a recovery in prices paid and a renewed level of urgency for business transactions in the past six months, Den Heijer said.
"It's hard to generalise, but last year multiples were probably around three-and-quarter times operating profit, now we are seeing a lot more deals around the four-times multiple."
- © Fairfax NZ News
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