23/04/2014 - 15:05

SME owners hang on for more

23/04/2014 - 15:05

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More small-to-medium Western Australian business owners are delaying plans to sell as market conditions convince them to hang in longer in the hope they can increase revenue.

SELL DOWN: Graham O’Hehir says in the next few years WA may see a rush of sellers as baby boomers, who are holding off, enter the market. Photo: Attila Csaszar.

More small-to-medium Western Australian business owners are delaying plans to sell as market conditions convince them to hang in longer in the hope they can increase revenue.

But many larger “quality” companies, whose businesses are attracting interest from corporations and self-managed super funds, have the upper hand.

Business broker Joseph Charles Learmonth Duffy, ranked third in Business News’ Book of Lists, has had to work hard to find willing sellers of sizeable hospitality and accommodation businesses.

Managing director Radar Luttrell said many businesses making $3 million to $50 million were reluctant to sell as they recognised that they were making higher returns than if they sold and used those funds to reinvest.

“There’s a strong demand for quality, sizeable businesses,” Mr Luttrell said.

“In this era of low interest rates managers of super funds are looking for opportunities for better returns.”

For smaller to medium-size businesses, it remains a buyer’s market.

GMO Business Sales managing director Graham O’Hehir, whose company is ranked first, said more business owners were holding off on plans to sell.

Mr O’Hehir, whose business sells about 100 small to medium enterprises and values about 100 more each year, said baby boomer owners in particular were working into their late sixties to give their businesses the chance to pick up and generate a higher sale.

“The end result of that is you’re probably going to end up with a big bank of businesses in three or four years’ time as all the baby boomers enter their 70th year and they’re all going to want to sell at once,” Mr O’Hehir said.

“So it’s an interesting dichotomy. You might have an excess of stock and you might have a deficit of buyers in five years time. There’s an interesting inflection point coming.”

Mr O’Hehir said younger people and business migrants receiving a visa for buying a business were the two groups which had potential to boost demand.

However, he said Generation’s X and Y had proven to be less interested in buying businesses than their parents.

Crowe Horwath corporate finance principal Darryl Norville, whose business often works with owners for up to three years to increase earnings and set up appropriate tax structures before a sale, said he had also noticed a drop in younger buyers.

“There seems to be less appetite for the next generation taking it over. They see their dads working in the business 30 years slogging their guts out, working god knows how many hours a day, and you see the next generation going ‘that’s not really for me’,” Mr Norville said.

He said while many owners had experienced less than stellar results last financial, which had convinced them to hold off, they had expressed hope for the future.

“I think there’s a hope that through the rest of 2014, and certainly financial year 2015, there’s going to be an improvement and therefore you’re not going to sell a business when the last earnings you’ve got were financial year 2013 and maybe weren’t so good,” he said.

“People want to go out on an improved basis.”

However, a March survey of business expectations among WA owners, carried out by Westpac and the Chamber of Commerce and Industry WA, found 43 per cent of local businesses expected economic conditions to worsen this year compared to a third who said so in December.

CCI chief economist John Nicolaou said despite many businesses operating in a challenging environment of reduced sales and increased input costs, the survey also revealed that businesses were continuing to invest and 73 per cent of respondents were planning to expand their operations this year.

Mr O’Hehir said some sectors inspired more business confidence than others, with manufacturing, distribution and services, as well as childcare services and hospitality sectors a standout.

“People selling products which can be sold online like fashion, bikes, and books have greater threat than those businesses where the smiling face is still important,” he said.

Mr O’Hehir said despite the risks, there would always be people wanting to own their own business.

“I would certainly say I’m a firm believer in business ownership and if I count all the houses clinging to the Swan River I suspect half of them are owned by people who own their own business and have been a great success. Being in a job won’t make you rich, owning your own business can make you rich, but there are risks.”

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