Volume up – values down

Businesses are flooding the market, and prices are reflecting this. But it is the smaller end that has wet feet. ANDREW KENT

By Andrew Kent

A flood of businesses coming on to the market is depressing prices, according to the research we’re doing at BizExchange. In the past year values have fallen 23% while volumes are up 178%.

The number of businesses advertised for sale for less than a year’s earnings continues to grow, representing nearly 10% of all listings for which the data was available. This is up from less than 1% 15 months ago

The BizExchange index, which will be released next week, reveals that the market for private businesses in Australia is developing a definite pattern of increasing listing volume and falling prices. 

But what is perhaps surprising given the enormous growth in the volume of businesses is that prices have not declined further.

The vast majority of the growth in number of businesses for sale is at the smaller end of the market, where prices have also been hardest hit.

The number of businesses for sale in the middle market ($5 million plus) has declined in recent months. This may reflect the ability of owners to better control the timing of their departure from the business in larger organisations where the business is less dependent on specific individuals.

The overall market trend of declining values continues with reductions in values across all industries and business sizes.

Survey results on expected values reveal a less certain outlook, with an increasing number of people uncertain about the future direction of business values.

What is not tracked in the index is the clearance rate across all advertised businesses, however anecdotaly it would appear that this has declined with repeat advertising in newspapers and longer running advertisements online being more evident.

This may be covering a larger than reported fall in what potential buyers are willing to pay.

Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations.

If you would like to receive a free copy of the BizExchange index when it is release you can subscribe to it at www.bizexchange.com.au. Further updates and analysis will also be available in this blog.

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