October 13th, 2011 | By Craig West SuccessionPlus
The latest bizexchange index report on Australian private business value is show some interesting results and highlights the need to keep a close eye on the market for business sales in
The premium paid for larger businesses, particularly those in the middle market ($5-$15 million turnover) remain strong. This end of the market is strongly influenced by equity markets with mergers and acquisitions the primary source of buyers. While retiring micro business owners flood the smaller end of the market dragging these prices lower. Over the last 12 months there’s been a steady convergence in the values of business below $5 million in turnover. This reflects the divergences value to businesses seeking private buyers compared to those more likely to be purchased by other businesses and again strongly reinforces the need for strategic exit and succession planning in preparation for sale.
Larger business owners preparing to retire should, if well-prepared, have far more success than those smaller businesses.
The numbers are also interesting in terms of the middle market businesses – retail trade for example are seeing very low EBIT multiples of 0.87 turnover below 5 million turnover and 1.39 for turnover between five and 15 million, whilst at the higher end property and business services are achieving multiples between 3.35 and 4.12 for larger businesses. Many micro businesses (turnover less than 500 K) are failing to achieve a multiple of one with several industry sectors between 0.58 and 0.92. Again the premium for size becomes lastly important.
The percentage of distribution of listings by EBIT value also reveals an interesting trend with over 24% listed at less than 1, 50% between one and 2, 20% between two and three and only 6% above three times multiple. In terms of business value as a multiple of EBIT the vast majority of businesses during the quarter sat between two and three times multiple of EBIT.