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[EP 189] Selling and Buying Businesses in a Pandemic Part 1

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iTunes: https://podcasts.apple.com/ph/podcast/the-deal-room/id1267098895

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Joanna: All right, well, here we are, in part two of our two-part series, all about how to sell a business in a pandemic. So this, as I said, is part two of a two-part series with Zoran from Xcllusive Business Sales. And if you miss part one, it might be an idea to go back and have a listen to that first, because in part one, we talked all about the current market, what it’s looking like at the moment what the impact has been on the past year and a bit of the pandemic, on valuations of businesses and lots of other tips and tricks in relation to the practicalities of selling a business in a pandemic. And in this episode, part two, we really going to have a bit of a look back at the predictions that Zoran and I made a year ago in this area and also talk a little bit about our predictions now for the short term and long term future moving forward. And Soren and I are digging into these topics in a lot more detail in a webinar that we are about to run that’s all about selling a business in a pandemic in that webinar, we’ll be really drilling into some of the practicalities we’ll be providing some tips and tricks and we’ll also be discussing some of those murky areas in relation to deal structuring. We’ll be driving into vendor finance, deferred payments, earnouts for attention, stage payments, all of those sorts of things. So if you’re looking at buying or selling in a pandemic, make sure you join in on that webinar, head over to our show notes where you can hit the registration button and register yourself that for now buckle in because here we go with our discussion with Zoran all about selling a business in a pandemic. Here we go.

Joanna: Zoran, welcome back to part two of our two-part series all about selling a business in a pandemic, I had so much fun in part one, we just have to continue the discussion in part two. And we did promise to give our listeners a little bit of a run over what we came up within our crystal ball gazing last year when we did this discussion. So cast your mind back a year ago. Zoran, what we were saying a year and a half ago and did it come true.

Zoran: It seemed like everything stopped for about three, four months in the beginning. And then after that what happened. It’s just you know, everything goes back to equilibrium. So from the memory, I think the number of businesses or new businesses in the market dropped up to about 50%. So my prediction was when everything is up and up, you’re going to have a normal level plus 50%. And then you’re going to get all these people when the job keeper and everything else stops, then you’re going to have people in, you know, being distressed and selling. So there was definitely a spike in businesses going on the market after the first lockdown. And it was really hard to handle actually because there is this surprise influx of new businesses and we kind of predicted that urgency from them. Because what are they this invoice you know, six or 12 months before that now the reason was even more important to you to actually move on. So people want to get one thing that didn’t have was liquidations and liquidations at the moment. Well, depending on which data you’re looking at, but people in the insolvency industry, about 40% ban still some data that I saw on the internet, then, you know in normal times it was about 800 liquidations per month in Australia and at the moment is between two and 400. And it’s normal times after GFC It was about 1200 a hot these numbers are right, that, you know we are way below 40% of the normal operations and that the reasons for that is the banks are pushing the succession department is looking at its extension of government policy. And it doesn’t make sense with one hand to hand the money with the other hand to ask for that money back. But another thing is the tax debt has ballooned. And it’s really hard to get exact data. But it’s substantially higher than was before the pandemic. So debt is yet to unravel. And anyone’s guess is when that’s going to stop and how that’s going to impact everything. Now, on the other hand, job keeper I have helped some of these people to actually get out of their trouble. It

Joanna: did it did and it certainly was interesting because I thought when job keeper was set to end, after its first tranche, I was really expecting a massive cliff. But of course, there was this extension for the businesses that were in the most pain and I think that really helped to taper.

Zoran: Okay, with that, I am going to say something controversial.

Joanna: Okay go ahead Zoran. It will not be like you if you don’t say something controversial. Let’s do it

Zoran: So it’s not like a small business or medium business, the director makes the decisions based on you know, directors responsibility, alright, people don’t actually sell who on going towards being insolvent. So I’m gonna pull the pin because this is a thing to do. And this is what, what needs to be done legally. In small businesses, people go belly up, when there is no other option. So they try everything and anything, and they very rarely make a decision. This is not with data, this is just my experience, I don’t have a data controller, but I’m sure if I look for that one, I will find one. So what actually happened, some of us put to the liquidation, somebody said, Hey, if you don’t pay this, and the biggest liquidation out of the businesses are pharmacy institution, banks, and number one is the tax department. And they not instigating liquidations. The liquidations won’t be part of it.

Joanna: Look, I think the other factor is also that the directors feel exposed personally to personal liability. And, you know, we did see for a while number of elements that, you know, were more protective regimes for directors. So last year you were in Sydney and we spoke about in part one that, of course, different states are impacted differently. But in Sydney, at least where you know, a lot of the business island acquisition activity in Australia is driven from I’m obviously in Sydney last year, the lockdown was a lot shorter, but the impact on business sales was massive initially, and we had broken around about perhaps a month after locked down we had deals that were still on the move, a lot of them did complete and then suddenly everything new that was coming in stopped for a couple of months, and then it started dribbling in, and then the floodgates opened, I was really buoyant about the whole industry in this year because I could see a lot of pent up ambition and activity by buyers. I know we’re working with a lot of buyers who are getting themselves ready to go really quickly. When this recent series of lockdowns happened. I didn’t see the brakes Come on. I have seen it slowed down a bit. But you know, I was really buoyant the last time we spoke, and I’m really buoyant again. And I just feel you know, my perception is that there’s a lot of people who are looking to do a lot of acquisitions, as soon as they feel that a bit of the confidence has returned about our opening.

Zoran: I think that the deals are happening. I think why he didn’t see the slow burn, it’s because the conversion rate is better. So you know, one in three businesses are selling well, no selling two out of three, but there’s less supply. So the less supply of the businesses sell. So from our point of view, in the industry, leading guidance people selling and buying businesses, it’s going very well. Sellers, the vendors thinking well, it’s not a good time to put the business on the market, but created a definitely seller’s market, in my opinion. Yeah, but I think it’s gonna happen now is what Well, one thing that I think going forward, everybody’s waiting for this to finish, and we’re gonna go back to normal. We’re not going to get back to normal anytime soon. All right. So even if you know one stage gets vaccinated very, very quickly, well, you still come travel interstate, because they are not yet vaccinated, you’re looking probably the first end of the first quarter next year, we’re gonna go back to normality. Now, if you’re the seller of the business, there could be a very, very long time, because you already postponed the decision for six maybe more months. So you’re looking to 12 months, and then once we detected This is when the market takes on average 200 days to complete the deal. So you’re looking to get out of the business, if you’re waiting for this to finish, and then putting your business on the market, you’re looking to get out of the business. Around let’s say December next year.

Joanna: Yeah. And that’s a long wait, isn’t it?

Zoran: One thing, because we’re talking about pandemic and stuff, one thing, the duration didn’t change. So what has changed his basis for the decision? Well, make sense? Actually, that so multiplies, if that makes sense was that people paying hasn’t changed? Yeah. Alright. So we’re still looking at anywhere between 35% to about 40% return on the business. So what has changed is the profitability of the business. And it’s all over the place, not necessarily down. In many cases. 21 was one of the best years on record for people. But when did when you go a little bit further into detail, you find out that the shopkeeper had an effect in bed shopkeeper could have the effect goes both ways, because maybe you had to pay top half of the wages as well. So or an equal rule doesn’t reflect operations of the business looking at the last year. So you gotta go far back and from that, you can assess where the future is going to hold and which is not impossible, but you’re making the best assessment as you can. And because of that, these different payments and some sort of earnouts come into play, so the way we sell businesses and the profitability of the businesses has changed. The multipliers have not changed the variable in some instances well in some industry they did go down we’re not going to name the names of guilty parties. But in some industries, the multipliers have gone up and taken for example overseas travel versus domestic travel so stuff like that but that’s not permanent. Whatever it’s happening in in Sydney industry today in six months down it will be different not maybe it will be different. All right, so all this needs to be taken into consideration. Nevertheless, the buyers are still looking for very safe returns they’re always looking and I think going forward and even now and going forward, small businesses and medium businesses gonna become more and more attractive acquisition or investments because interest rates are great and where else are you gonna put in money? Bitcoin? Hahaha

Joanna:  I’ve been part of a number of discussions recently in the finance and wealth management space and there’s a lot of energy around business as an investment vehicle and I think for very good reason and so once again, I am an optimist but I’m really buoyant about where we’re going to be next year but I guess then also this comes back to what do businesses need to do to prepare themselves now and I guess Zoran you would say, number one, don’t wait to get yourself out in the market.

Zoran: Yes. Go out right away. Right away.

Joanna: And of course, we’re about to have a webinar where we’re going to dig into some of the issues and some of the benefits of selling your business in a pandemic, how you go about doing that the impact on valuation and we’ll dive into some of these considerations in terms of deal structures for deferred payments retentions earnouts because all of these elements become particularly important when we’re looking at doing deals in uncertain times. Like the pandemic that we’re in right now. And if you’re interested in registering for that we’ve got registration details in the show notes so make sure you check out the show notes and register for that webinar now. But I guess in rounding out these conversations are and the point is the market is still relatively buoyant right now there’s still stuff going on deals are happening.

Zoran: Joanna is not relatively buoyant. It’s all overheating. I am dead serious. Look, I’ll tell you this, I’ll tell you this. So we’ve got probably about 50 investments from private investment companies, so you get a you get a 10th 1550 individuals that put money together and they go the funds of 50 $200 million and they’re looking to buy businesses which are three to five to $10 million into merging together and keep them for the return on investment because he makes a lot of sense it’s not speculative, it’s actually positively good investment and as soon as the positive again I can tell you that five years ago there was few and far between people and they still were doing it now there’s more and more of that because there is a lot of cash on the market and nowhere to park it because look two ways you can do investment you can buy the cash investment which you know bonds and term deposits where you put the money and that’s gonna return you like one or 2% It’s a joke you’re not gonna do that so that’s the other thing it’s a speculative investment so when you buy something and you speculate it’s going to go up right which is the moment housing is really what shows up in everything that’s going down but the businesses will always investment that gives you a return on your investment into continuous return. So you’re not going to get a capital gain on business unless you prove that there’s not gonna be coupons you can be on the share my other investments but it is a really good strong long term investment they’re still selling you can expect anywhere between 20 and 40% return that’s not one year that’s continuous return if grant couple in some instances you can not lose it all very quickly.

Joanna: If you won’t lose your money you are gonna do really well.

Zoran: It is an active investment because you do have control when you buy the currency so you’re relying on your own skills and ability to run it in suppose to putting money into something to heal and standing hoping for the best Yeah, so I think like business investment, you know, business transaction leads small businesses and million businesses here to save money is going to change Alright, just my message and look, we said looking at understanding this to sell today sell it now. I honestly think if you see the reason why business owners sell businesses, it’s only 20% is retirement, everything else is something else. So it could be changing your circumstances changing a business, getting opportunities, moving family issues, whatever it is alright. And these things often can be different. Right? And the moment you don’t know how long you’re going to have to wait you can even make a plan if you’re waiting to be on the other side of this. But the buyer says that there were similar circumstances so these are happening in it is quite different from the first lockdown to the head. It’s way more than we’re used to talking to people in the Zoom Room looking at the screen on the wall pictures, it just does well and unfortunately, I hate to say it but that’s what it is. So because of this happening, no reason to postpone the sale unless you got some issue within the business there won’t be resolved until the end of the pandemic

Joanna: Yeah, and there are some of those around as well. And I think that sometimes the fear is that the business whilst you’re talking about you know, the last financial year being the very strong financial year for many businesses, it’s not true across the board, of course, it’s not all businesses and some businesses feel exposed by putting the business on the market at a period that they feel that they’re more vulnerable. But there are many you know, buyers understand that it’s been an unusual set of circumstances everyone’s used to dealing with this now we’ve been in it for a while and there are ways around it we also

Zoran: We can also be hit by waiting fatigue, I mean, how long can I wait for you to get old though? Things are changing so you can’t wait and also you don’t know how long you’re going to wait I mean look at this 2021 you’re in this for how long to two years or one and a half years.

Joanna: Yeah, it’s like 100 years I guess.

Zoran: Yeah feels like 100 years but you don’t know when you’re going to be other All right. So it’s another year and a half that’s that’s like ready to invest in a stock market or housing market when the market corrects well, markets can be irrational way longer than when you can be patient. So a lot goes on you can also happen you can get there’s no reason to postpone.

Joanna: I totally agree. Well look Zoran, and I just want to say a massive thank you for coming back onto the show. And of course if you’re interested in digging deep into this whole area of selling your business in a pandemic, Zoran and I are getting Deep into each of these topics talking about the impact of COVID-19 on business valuations, the current market, how to deal with different ways of structuring the deals, and how to prep your business for sale in a market like this. So make sure you find the registration link in the show notes and come along and bring your questions for Zoran and I. Zoran if our listeners want to contact you, in the meantime, to talk about getting their business ready for sale, or if they’re looking at buying a business and want to see what you have got listed and ready there. For them as buyers, how did they contact you?

Zoran: Well, firstly is to just find our website, all our contact details are they, it’s Xcllusive Business Sale. Just google it and it will come up, you know, it’s very easy to walk through, find the stuff we do not have information on the website as well. But everyone contact details, we’re just a phone call away.

Joanna: Brilliant. Okay. And of course, we’ll link through to that in the show notes as well. Zoran, I just want to say a massive thank you. And I’m looking forward to digging deeper into all of these in our webinar coming up really soon.

Zoran: Yeah, thank you for putting this together because I think it’s really important for people to go as informed as they possibly can before they actually put the business on the market and make that decision in their lives. And I think you’re doing a great job by helping them through this show.

Joanna: Brilliant. Thank you, Zoran. And I didn’t pay you to say that but thank you.

Zoran: Hahaha You’re welcome. No seriously. I mean it.

Joanna: Wonderful thanks, Zoran.

Joanna: Well, that’s it for our two-part series, all about selling businesses in a pandemic, with Zoran from Xcllusive Business Brokers. And of course, over the last two episodes, we’ve been talking all about the ins and outs of selling businesses in a pandemic. I hope you found that really useful. Now don’t forget that Zoran and I are about to run a webinar where we are going to dig deep into these topics. So if you’re interested in understanding how to prepare your business for a silent pandemic, or indeed if you’re thinking about purchasing a business, and interested in the impact of a pandemic, or you just really want to learn more about deal structuring, earnouts deferred payments retentions then make sure you come along to our webinar you’ll find a registration link in the show notes and at our podcast page for this episode at thedealroompodcast.com. There you’ll also be able to find details of how to contact Zoran at Xcllusive Business Brokers if you’d like a little bit of assistance with getting your business ready to put on the market there you’ll also, of course, find details of how to contact our legal Eagles at Aspect Legal if you or your clients would like to discuss any legal aspects of sales or acquisitions. We’ve got a number of products to help businesses get sale-ready and that is of critical importance if you’re looking at selling your business so we help businesses prepare for sale and undertake the sale transaction of course we also act on the buy-side as well helping prepare buyers for an acquisition helping them undertake the due diligence and other investigations they need to enter the business to make sure it’s the right business for purchase and help them navigate the transaction documents along the way. So if you’d like to talk about how we might be able to assist your business or those of your clients in a sale or acquisition then just head over to our website at aspectlegal.com.au and book yourself a free initial appointment to talk with our legal team. Well that’s it I hope you enjoyed what you heard today. Don’t forget to register for our upcoming webinar and I look forward to having you on the show next time. Thanks you’ve been listening to Joanna Oakey and The Deal Room podcast. A podcast proudly brought to you by our commercial legal practice Aspect Legal. See you next time.

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