08/10/2018 - 15:51

Brokers’ best business in mining services

08/10/2018 - 15:51


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Tighter lending conditions likely after the banking royal commission will be a hurdle for business brokers who are seeing a slow improvement in their market.

Russell Lyon says the market should start to gradually improve from the start of 2019. Photo: Gabriel Oliveira

Tighter lending conditions likely after the banking royal commission will be a hurdle for business brokers who are seeing a slow improvement in their market.

Improving transaction activity in mining services is one of few recent highlights for business brokers during what has been a prolonged tough market.

But there are fears those gains may come under threat if a financial tightening emerges in the aftermath of the banking royal commission.

Construction, transport and wholesale trading have been flagged by brokers as the industries where good small- and medium-sized businesses are selling, while franchising in particular has hit a wall.

Despite challenging conditions, the broking sector has largely held firm during the past 12 months, according to BNiQ Search Engine data (see table to the right).

The number of brokers among the top five brokerages has remained stable since 2016, at 60, compared with 63.

One broker that has expanded in recent months is West Perth-based Performance Business Sales, which has lifted its number of licensed brokers from five to 13.

That helped lift the company into second place on the BNiQ Search Engine business brokers list.

Performance partner Russell Lyon told Business News that, as signs of recovery emerged, the business needed more staff to handle increasing inquiry levels.

“We think things are going to improve, but we think it’ll be in the new year,” Mr Lyon said.

“I don’t think it’ll be a dramatic improvement, it’ll be a slow improvement.

“The bank royal commission has put the brakes on; it appears that the banks have tightened up on lending.

“They’ve got themselves to blame but it affects business broking, the real estate market, a lot of other things.

“We still find that (when) we’ve got good businesses, and they’re showing increasing turnover and profits, there are buyers out there for them.”

Ascend Corporate director Nigel Gill said a recovery in mining had supported improved valuations and higher activity levels.

“The space I’m in, I’d categorise as being the highest growth at the moment – mining services, medium to larger businesses,” he said.

“That’s probably been as active as it’s been, in the past six months.”

The West Perth-based firm did what many brokers suggest was probably the largest deal in that space in the past year, selling a mining-oriented transport business valued at more than $25 million.

There was also higher demand in construction, although valuations were not yet taking off.

By contrast, industries relating to food, restaurants and hotels were quite saturated with sellers, while franchising in particular had suffered after a string of bad press, with valuations down by around 20 per cent.

Broadly, Mr Gill said any improvements in valuations were coming from better earnings figures, rather than higher earnings multiples.

NGBB director Neville Roediger agreed that mining services was the standout sector.

The market generally was pretty flat, Mr Roediger said, and Burswood-based NGBB was targeting opportunities away from its traditional base of retailing businesses.

“Retail is doing extremely poorly,” he said.

“Most business we see, their balance sheets have been impacted by a couple of bad years in the economy.

“There’s probably an oversupply of sellers ... and the other big factor is banks with their risk-averse policy.

“It’s a typical pendulum scenario; they’ve swung way too far to the other side.”

West Perth-based GMO Business Sales was top of the BNiQ Search Engine business brokers list, which is ranked by number of licensed brokers, with 21.

GMO principal Graham O’Hehir said he was seeing green shoots in the market, although it was not mining services driving deals for that brokerage.

“It’s definitely improving,” Mr O’Hehir said.

“Service and distribution wholesale are the two we’re seeing the most positive growth.”

He shared concerns about the impact of the banking royal commission.

“It’s going to slow down the loan process, and where SME and micro sales might have expected a loan approval in three weeks, it could now be six to eight weeks,” Mr O’Hehir said.

Similarly, the pressure on franchising would flow through to brokers, he said, with firms specialising in that space likely to struggle in the near term.

BNiQ data shows GMO’s number of licensed brokers has dropped slightly in the past year, from 25 to 21, while Mr O’Hehir said the company had moved into a new regional market in the past 18 months.

“We felt the need to have some permanent representation out of Bunbury because of the steady growth in the South West sector,” he said.

‘We’re very confident about sales activity taking place in that South West region.”


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