Market Trends: Business Sales in a Post-Covid Environment
Market Trends: Business Sales in a Post-Covid Environment
The 2023 financial year is underway and for many businesses around Australia, it's the first time since 2019 that we are starting out of lockdown!
Zoran Sarabaca from Xcllusive Business Sales recently featured on an episode of The Deal Room podcast, hosted by Joanna Oakey from Aspect Legal.
These industry experts discussed business life after covid, the effects on business sales, how deals are now being structured to reduce risk and the impact on different industries.
What the Market is Saying
“What we see from our numbers, it looks that it [the market] is up 100% from pre-covid. It is really interesting, but why is that happening? When the pandemic started, the number of businesses that were going on the market dropped, but buyers stayed.” Zoran went on to say, there was always a demand on the market; the problem was just a lack of supply.
The steepest drop in the market was when Victoria declared a state of emergency. On the flip side, a climb occurred when Australia recorded their first day of zero covid cases, November 1, 2020 (affectionately dubbed ‘donut day’).
“We started moving on from this pandemic type of thinking in about October 2021, and the businesses started coming back. March 2022 we were back to where we were before covid, actually a little bit higher, but what has happened since then? We are about 30% higher again and the last 3 months were phenomenal in how many businesses [the volume that’s coming in].” Zoran said.
What is the Cause
There are two key things happening right now that are driving the increase in listings. Firstly, in 2020, many business owners postponed their decisions to sell but now they are ready.. Secondly, there are a lot of business owners choosing to retire, for a variety of reasons.
Many business owners had cash on hand thanks to government stimulus, the property market was high and equities were high. As Zoran said, it is only natural for people in business to consider retirement, hypothesising that a lot of business owners were thinking “If you don’t know what the future holds, how about retire now because we have enough to?”.
“It’s not just retirement age, people brought any decisions forward. For example, wanting to move somewhere new, why not do it now?”.
This phenomenon is not exclusive to sellers, Zoran explains that a similar thing happened to buyers as well, as everybody had to postpone decisions throughout the course of the last 2 years.
“Normally happens when you get a lot of businesses on the market when the supply is higher than the demand, the transaction is slow. A similar thing happened to buyers because they postponed their decision for a while, now they are saying I don’t know what the future holds but I can’t postpone this for another 3 years because I will be 6 years older.” Zoran said.
Deal Structures Now Focus on Minimising RIsk
There is a lot of activity on the market right now, one big difference, the deals are not as easy as they were pre-covid.
“Buyers are looking more to the risks of the future, so sellers have to take a portion of that risk on themselves through some form of deferred payments, security or guarantee going forward. In general, we are finding a way to do that and it is happening quite nicely. Buyers are buying businesses and are happy, and sellers are selling businesses and they are happy too.”
The after-effects of covid are making themselves known in other ways throughout the business sales process.
“There are businesses that had a big dip that are now coming back, and we don’t know where the future maintainable profits are. On the flip side, had a lot of businesses that generated some fantastic profits through covid (like the sales of PPE), there are a lot of businesses that have done very well, that had an initial hit, and then they really came about profits increased. It's really hard to say that is normal for this business, is it just a blip that is going to change? In both cases, we have to put in derisking strategies for the buyer going forward.”
With risk at the forefront of the buyers mind, sellers need to take it into consideration when planning to sell. Receiving advice from professionals such as a business broker and lawyer, as they two experts are, can ensure a smoother transaction.
“Derisking is now crucial to a successful sale, buyers and sellers are interested in deal structures that will help minimise their own risks. There is a risk for both buyer and seller and from the sellers' point of view, wanting to exit but perhaps benefit from future profits, the derisking aspect of the deal needs to help the owners as well so that they can go forward and get better.”
As Zoran points out, you can’t make any deal 100% risk-free, “there is a risk in any contract” so he suggests that “we have to move to the human side way more in some instances, what does the buyer want to achieve? What does the seller want to achieve? You don’t want to give too much weight to the deal because you can destroy the deal.”
Ultimately, there has been an incredible volume of deals and more deals with greater difficulty in achieving the right structure for both buyer and seller. So why are deals getting more complicated and what does this mean for future industries?
“Now that we have the rising interest rates, geopolitical situations, and supply chain issues it raises the question “how are we going to derisk both sides [of a sale for the buyer and seller]?”
Manufacturing is Heating Up
In industry discussions, Zoran highlights that manufacturing is growing in popularity domestically.
“A lot of Australians looking for manufacturing businesses, great interest in manufacturing!”
Before covid and the ensuing international supply chain issues, there was a definite cloud over the manufacturing industry, but as Zoran has pointed out, all things are pointing up for manufacturing.
‘I’m hoping that because of the demand, they’re going to make more money together with government stimulus, government loans and instant cash write-off, that they’re going to put more into technology manufacturing and that manufacturing will start coming back to Australia much faster than what we originally thought. That is clear as day.”
To hear the full podcast with these leading experts please tune in to Episode 221 of The Deal Room Podcast hosted by Joanna Oakey of Aspect Legal.
Tags: selling market share covid-19
About the author
Caitlin Mary
Journalist
Caitlin has a background in media and communications, studying journalism at University and doing various freelance writing and production work over ...
