Business brokers jostle for market lead

Perth’s major business brokers are adapting their strategies to deal with a changing buyer profile and a general softening of prices.

The state’s largest business broking firm is GMO Business Sales, which employs 22 brokers, according to the BNiQ Search Engine (see list next page).

Managing director Graham O'Hehir said GMO had its best-ever year in 2015-16, with several notable sales between $2 million and $10 million.

Ascend Corporate is next with 12 brokers, followed by Performance Business Sales (10) and Ellis Corporate (nine).

Ascend executive director Nigel Gill believes his firm is outperforming the competition, based on the 150 listings it normally carries on its website and the value of its transactions.

“We think we’ve become the number one broker in the state,” Mr Gill said.

Most of its transactions are valued in the $750,000 to $3 million range, but Mr Gill said the firm had completed several larger deals, including hotel sales.

It also recently acted for St John Ambulance WA on the acquisition of a chain of medical centres from Sonic Healthcare subsidiary Apollo Health.

St John's 2015-16 annual report disclosed this deal was worth $22.8 million.

Ellis Corporate principal David Ellis said after 35 years of successful operation, his firm had settled on a team of experienced and long-standing business brokers working across the SME market place.

Mr Ellis said the focus on assisting business migrants seeking opportunities in the Western Australian market had been a substantial area of activity.

He said the firm typically had 80 to 90 business opportunities available at any time.

Senior consultant Peter Marinovich summed up the major trends Ellis Corporate had identified.

“In a nutshell serious buyers are king,” Mr Marinovich told Business News.

“Maintenance businesses are in strong demand, sellers are having to lower their expectations and exercise patience, the expected wave of former fly-in, fly-out buyers hasn’t materialised, and cashed-up migrants are in short supply, particularly at the lower end of the market.”

Mr Marinovich said that, unlike in the past, most of today’s migrants were arriving without the funds required to buy even a small business, and many mistakenly believed they could borrow the required funds from a bank.

“Vendors have to be prepared to meet today’s market,” he said.

“Newsagencies that were offered for sale at a price based on a multiple of three-times profit are now more likely to be sold at little higher than two times profit.”

Ascend executive director Lance White agrees that two-times pricing multiples are now the norm, but sees some different trends.

“The level of buyer activity is the strongest I’ve seen in a long time,” Mr White said.

“There’s still strong interest across just about all areas, but the pricing has come down a bit.”

He said former Fifo workers had added to the demand for private businesses, with geologists having a keen interest in petrol stations.

Mr Gill said he was most active in mining and construction, which were starting to pick up, professional services (such as accounting firms), and independent supermarkets.

Mr O’Hehir said notable transactions for GMO during the past year included the sale of Belmont-based Caddy Industrial Sales – a major supplier of construction support systems.

The buyer was privately owned French company CIL Group, which bought another WA business, Abrasiflex, through GMO several years ago.

CIL director Frederic Flipo, who heads the group’s Australian operations, said his strategy was to take Caddy’s products from WA to the national market, in the same way it had grown the Abrasiflex business.

Mr O’Hehir said other sales valued up to $5 million included a shed manufacturing business, a managed computer bureau service, a marine services business and a supplier of ingredients to the cafe/coffee sector.

He said a feature of GMO’s growth strategy was its new franchise sales team, which represented the sale of master franchises as well as many individual franchise outlets. 

Mergers & Acquisitions director Ross Goldstein said the market has reached the stage where buyers and sellers are adapting to the 'new norm' after the roller coaster ride in the mining and oil & gas industries.

"Buyers feel comfortable that the last couple of financial years trading results are starting to be indicative of potential future maintainable profits," Mr Goldstein said.

"We are also finding that many transactions have a component of either retained equity or an earn-out inducement to ensure that the post-acquisition transition goes smoothly."

Mr Goldstein said his firm has just completed a mining services transaction with an enterprise value of $20 million with a listed Chinese company acquiring an initial majority shareholding, with options for increasing their shareholding.

He said the firm's Sydney branch was going well, with three deals currently involved in due diligence.