13 Apr 2021

Multiple buyers bidding up prices of small-medium sized businesses

11:10 am on 13 April 2021

Small and medium sized businesses (SMEs) are selling for top dollar with bidding wars for the best yielding investments.

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Photo: 123RF

ABC Business Sales said some businesses had been fetching up to 30 percent more than the asking price, with multiple buyers bidding up prices.

"There are still many more buyers looking for a small-medium sized business than there are sellers," ABC Business managing director Chris Small said.

"Given the extreme uncertainty SME businesses are experiencing, it's not surprising that many owners who planned to sell their business are holding off listing it for sale due to thinking they may not maximise the value of their business in this environment," he said.

"In fact, the opposite is the case."

Hamilton small beauty business Little Loft was an example of a company recently attracting strong buyer interest.

"Within a couple of weeks of listing the business through a broker we had a multi-offer situation in front of us and the final price more than exceeded our initial expectations - by a very long way," Little Loft vendor Tony Walker said.

Small said there was strong demand across a number of sectors, with businesses returning between $200,000 to $400,000 fetching anywhere from $500,000 to a $1 million.

"As far as industries go, food import distribution--anything that supplies supermarkets; building supplies, construction; healthcare; childcare is very strong; agri-services; one very popular are pet boarding businesses, so obviously we all know that a lot of people have bought new cats, new dogs during Covid, and those businesses are being actively sought by a number of purchasers."

He said investment in businesses compared favourable with other types of investments.

"The yields generated from business ownership sits in the range of 20 to 30 percent, which is materially above any other asset class including term deposits (1 percent - 2 percent), property yields (5 percent - 6 percent) and dividends from listed shares (3 percent - 4 percent)," he said.

"Banks are also being encouraged to lend into the business community," he said, adding business lending was typically set at 50 percent of the total sales price.

"That's why the message to business owners thinking of selling, is that the demand is definitely there right now for the right businesses and buyers are ready and waiting."