Compliance costs business brokers

TOUGHER regulatory requirements, the need to specialise and professional indemnity insurance costs are making business brokers a dying breed.

Goodwin Mitchell O’Hehir managing partner Graham O’Hehir said the recent legal focus on real estate-linked sectors such as finance broking had hurt the business broking industry.

“However, my personal opinion is that most business agents are better corporate citizens than they were 10 years ago,” he said.

Mr O’Hehir said the industry was becoming much more complex, particularly in the compliance regime it had to satisfy.

“The Real Estate Institute of WA forms we have to file have changed considerably. They are now far more detailed and complicated than they were a decade ago.

“That complexity is forcing people out of the market but the good thing with that is the good business brokers are the ones staying in.”

Jan Gunnink and Co principal Jan Gunnink said compliance had become much tougher in the past couple of years.

“There are more questions to be answered now,” he said.

“The GST changed things around a lot.”

Under WA law real estate agents are also licensed to be business brokers, however, while there are more than 3,000 licensed real estate agents in WA, only 70 to 80 are specialised business brokers.

According to industry sources there are about six main players in WA.

GMO, with its staff of 15, is the largest player in town. It is also the only major general business broker left.

Mr O’Hehir said the firm sold about 150 businesses each year.

Below GMO a number of other players with up to five staff emerge, such as Joseph Charles Learmonth Duffy, Mergers and Acquisitions, Jan Gunnink and Co and Ellis Corporate.

While GMO is considered the largest player based on staff levels, JCLD, Mergers and Acquisitions and even Ellis Corporate are starting to emerge as major players.

GMO’s average deal size is between $300,000 and $3 million while JCLD, M&A and Ellis Corporate all trade in the $1 million to $15 million range.

Jan Gunnink and Co’s maximum deal size is around the $3 million mark.

About 80 per cent of the business broking market is in the up to $300,000 range.

Industry analysts put smaller players such as Newsagency and General and Fortune Business Marketing, and Mavros and Associates below that group.

JCLD had been considered the second largest player in the market. It, like GMO, was a general business broker and boasted 20 staff.

However, the 104-year-old business broker recently underwent a shock downsizing.

JCLD principal Radar Luttrel said professional indemnity insurance concerns had been one of the main reasons for the downsizing.

The business shed about 16 staff to concentrate on the hospitality and retail sectors.

“The premiums have gone up considerably. Because the industry is so sensitive, liabilities have become far too high,” he said.

Mr Luttrel said he had also wanted to concentrate on the hospitality sector, because such specialisation was both more personally enjoyable and financially lucrative.

Most business brokers were being forced to find niches.

“Commerce is going that way and we need to as well,” Mr Luttrel said.

“Clients want my whole personal attention. At the end of the day it brings me more job satisfaction through being more hands-on.”

JCLD also previously had a property management arm but that was carved off to create Key 2, which now has around $500 million in properties under management. Mr Luttrel said he believed the firm was still the second largest player in WA.

Mergers and Acquisitions principal Ross Goldstein said industry players were starting to find their niches.

“You either have to be seen as the largest general player or the top of your niche to be successful,” he said.

“We specialise in not dealing in retail. If a supermarket deal worth $5 million came up we wouldn’t touch it.

“We also do a lot of business with listed companies either acquiring businesses or divesting of non-core assets.”

Ellis Corporate principal David Ellis said his firm specialised in industrial and wholesale concerns.

“We deal a lot with business migrants and they have totally different constraints to listed companies,” he said.

Like Mergers and Acquisitions, Ellis Corporate deals with listed companies that are acquiring or divesting.

Mr Ellis said credibility was key in the business broking industry.

“We find that when people come into our office our chance of effecting a sale goes up 1,000 per cent,” he said.

The late 1980s and early 1990s were boom times for business brokers. Redundancies were on the increase and the newly re-trenched were on the look out for business options.

However, by the late 1990s the stock market was on a high and people were preferring to invest there rather than go into business for themselves.

With the stock market now in the doldrums, some believe the business brokers’ time may be coming around again.

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