Buyers seek well managed businesses

Despite the current economic downturn buyers are seeking to acquire well priced, well managed businesses mainly in the price range from R20-R60 million, and even up to R100 million, says Adam Cowell, business broking consultant for Pam Golding Commercial's business sales and acquisitions division. Currently several transactions are under negotiation in regard to an import business, tourist facility and construction business.

"Such buyers are mainly looking at well positioned businesses with a sound structure and good distribution - with the bulk our current enquiries in the fields of engineering, construction, mining and education. Some are looking to acquire additional brands to complement their existing infrastructure and distribution network, while others are seeking to acquire a business as part of their relocation from Gauteng to the Western Cape.

"While the buyers are there, the question is, are suitable businesses saleable now? Unfortunately in many instances - mostly small to medium sized businesses - the accounting information is poor, often incomplete and not up to date. Such problems in providing timely financial information makes the due diligence of a business very difficult as buyers require factual, tangible management accounts. They are generally shrewd and will only pay a fair price for a good business that is well managed," says Cowell.

He says sellers need to be aware of this and also tidy up the business before taking it to market. In today's tighter market it's even more important that they make the right fundamental business decisions now, for example who to employ, how to structure rentals, are they carrying too much stock, what is their currency exposure, and so on. And they should not allow the business to run down - rather sell while there is something worthwhile to sell.

"While approximately two years ago business owners were keen to sell the future potential of the business, now they are eager to sell the past success, instead of focusing on the current status quo. Today, economic trading conditions are tighter, costs have increased exponentially even if incomes have remained stable, and in some instances business owners are even borrowing revenue out of tomorrow's anticipated success in terms of credit.

"Particularly given the current market - and in fact in any market - sellers need to be realistic about asking prices and the financials must support the price. In many instances sellers' expectations are that the selling price should be based on what they require in order to live. Unless they have invested in the business in order to grow it and create tangible assets, they may well find that their asking prices are not realistic, as no purchaser will base an offer on simply on what the seller feels he or she needs as income," adds Cowell.

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