Data hints at move to buyer’s market: ABC
The average price for small to medium businesses (up to $5 million), excluding hospitality, increased by 8 per cent in the year to June, according to ABC Business Sales’ quarterly report.
It says the increase is down from the last quarter, which saw a 15 per cent increase, but the company believes the current market is more balanced between supply and demand and the increase is a sustainable rate, and in line with the current inflation rate.
For the rest of 2022, ABC expects prices will flatten off and annual price growth will be in the range of 1-8 per cent.
The average price for hospitality businesses in the same bracket has seen a 40 per cent increase in the same period.
ABC says the initial Covid-19 lockdowns formed part of the June 2021 numbers and the new data clearly shows a bounce-back in prices.
“The June 2022 average hospitality price of $284,050 is more reflective of a normal market and we believe these prices will be sustained going forward.”
Looking ahead to 2023, ABC’s report says data indicates the market is experiencing a normal level of activity but is not recording the record levels of activity seen in 2021.
“Other external reports have also recorded the same trend with activity slowing down to what are termed normal levels and balanced activity compared to the frenetic pace and activity of 2021.
“The real question is: will this moderated level of business sales continue for the remainder of 2022 and into 2023? The data shows us transaction volumes are down 10 per cent (albeit from a record year) and we expect this to continue and be maintained in the short to medium term.
“What we are seeing are data points in regards to supply and demand drivers that confirm we no longer have a mismatch (demand exceeding supply) and there will be a more evenly balanced market place between sellers and buyers (less of a seller’s market).”
Completed business sales volumes for the year to June are down 11 per cent compared with June 2021 and 26 per cent ahead of June 2020.
ABC says this supports the conclusion that 2021 was a record year and 2022 is reverting to a more normal market at more sustainable volumes.
“There is no doubt we had been in a seller's market in 2021, with historical data confirming demand factors were exceeding supply. Demand levels have declined and normalised and this has contributed to total business sales reducing from 451 (June 2021) to 399 (June 2022).
“The high conversion rates of around 50 per cent (sales/new listings) are being maintained in the current market. This reinforces our thoughts that quality businesses are always in high demand and sell quickly and effectively if taken to market via a professional sales process.
“What will be interesting to gauge is if these high conversion rates continue for the 2022-23 year with recent data suggesting demand is decreasing. If this scenario continues, we may be in the early stages of moving to a buyer's market.”
ABC says its sixth Market Intelligence Report shows a continuation of trends and behaviours in the previous report to the end of March 2022, with the business sales market no longer continuing to experience the previous significant gap between supply and demand.
Demand data points, such as signed confidentiality agreements by prospective buyers, have shown a decline compared to the same period last year.
Supply data points, such as new businesses listed for sale, have flattened off with small decreases (1 per cent and 7 per cent) both at a total market level and ABC level.
“The market conditions historically showed excess demand and reduced supply characteristics.
“The new data is showing signs of a more balanced market with reduced demand being matched by a small decline in businesses coming to market, resulting in a consistent and balanced market for both buyers and sellers,” the company concludes.