28/01/2009 - 22:00

Business brokers report slowdown

28/01/2009 - 22:00

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BUSINESS brokers say the fear of retrenchment, tightening credit conditions and the search for strong cash flows are driving the market, as buyers and lenders continue to tread with caution.

BUSINESS brokers say the fear of retrenchment, tightening credit conditions and the search for strong cash flows are driving the market, as buyers and lenders continue to tread with caution.

The price of many businesses has fallen over the past few months as lenders grow cautious of dispensing with their money.

Business brokers say cautious lending breeds cautious buying in what is rapidly becoming a buyers' market.

Scrupulous decision-making by banks and lenders is turning borrowing money into an increasingly taxing and time-consuming process that filters out the browsers and leaves the focused buyer with ready funds at hand.

But while brokers contacted by WA Business News concede there is decreased interest, real buyers are still out there and looking for a good deal.

Performance Business Sales principal Russell Lyon said those buyers who do surface are usually well prepared.

"What we find is instead of having to talk to large volumes of people we're talking to less, but at least for a lot of them they have pre-approved funding or have assets backing their purchase," Mr Lyon said.

Market conditions have brought out increasingly autonomous and aggressive buyers as they scour businesses for solid performance records and good profit return, with more of an opinion about what they are looking to buy and what business they believe will weather the storm.

Valuing businesses is also becoming more difficult, with performance figures stretching back even a few months rapidly losing their validity as economic conditions change.

Ellis Corporate principal David Ellis said the change in business value had been surprisingly rapid.

"A mining services company has recently accepted a $5 million offer, a figure which equalled its profits in the year ending June 2008," Mr Ellis said.

"A few months ago, this would have been unheard of. But sellers need to get realistic, lower their expectations and realise the world has changed."

Brokers forecast a slow-down in any business linked to mining and resources, while businesses linked to the so-called life essentials are set to prosper, with buyers looking for solid cash-flow operations.

This means retail, cafes and newsagents have proven popular, while larger services and contracting operations risk being left on the shelf.

Goodwin Mitchell O'Hehir and Associates is the state's largest business broker, according to the WA Business News' Book of Lists (see page 16).

Principal Graham O'Hehir said increased retrenchment activity had forced people to look at their options.

"We're seeing people, both white collar and blue collar, who are worried about losing their positions, or have done so, who are looking at buying businesses," Mr O'Hehir said.

Other brokers say they have seen businesses previously put up for sale being recalled as owners realise they may not be able to afford to retire comfortably at the price they are likely to receive.

The idea of a good bargain may sit stronger with buyers as they hope to snap up struggling businesses for future investment.

One broker said a very large private company has approached them with $700 million to spend on acquisitions.

As public companies and browsing buyers tighten their belts, it remains clear that buyers with money are out there, and they are looking to spend.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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