[EP 285] Are We In A Buyers Market? The Real Story Behind the Latest Surge in Business Buyer Enquiries (Part 2)

Transcript below!

Note: This has been automatically transcribed so will be full of errors! We are not providing it to you as a word-perfect version of the podcast but just as an easy way to provide you with a different way to be able to scan for information that might be relevant to you.

Joanna Oakey [00:00:24]:
Welcome back to The Deal Room podcast, a podcast proudly brought to you by our commercial leg of practice, Aspect Legal. Now, this episode is part two of our catch up with Lucia Vong, head of Australia’s largest online business for sale marketplace seat business, and also Warren Hogan, the chief economic advisor at Judo bank. For those of you not familiar with Warren, he was the AFR forecaster of the year in 2023 for both interest rates and the economy, and has done a lot of work in relation to how the economic data connects with business confidence and broader trends in business investment. So, of course, that’s why we are talking data in this two part episode. Now, hopefully you’ve listened to part one. And now in this second part of our two part series, Lucia and Warren share insights from their recently released Marketplace Insights Inquiry Trends report, along with macroeconomic data and exclusive inquiry data from seek business. Now, we see hundreds of transactions at Aspect Legal, and I can personally attest to how connected volume and speed of transactions are to SME business confidence and the general economy. As you’ll hear from Warren and Lysia, there is absolutely a correlation in the data they’re each seen.

Joanna Oakey [00:01:56]:
Now, this episode covers a lot of ground, from impact of technology to what sectors are seeing rising buyer demand and why. Along with some predictions about what we might see in the short to medium term ahead, we also do some crystal balling. What is the RBA likely to do with rates? What kind of labor trends are we likely to see, and how might this impact the market for business sales and acquisitions? If you’ve not listened to part one, I absolutely encourage you to go back and have a listen. But for now, let’s dig into part two with Lucia and Warren. So I have a few questions. One of the things you mentioned earlier, Lucia, was that seller, the number of listings has stayed stable essentially for the last ten years in the data that you okay, so I have a question, Warren. Where’s this cliff of retirees? This is the expectation I feel for the last ten years, we’ve all been talking about this wave of retirees that are coming. Where in heck are they? What’s going on?

Warren Hogan [00:03:07]:
It’s actually interesting, and I’m thinking a little on my feet here, so I apologize in advance. But you think about a standard job working for a big bank or government or something, and you’re probably pretty keen to get out of there at sort of 65, and there’s probably a few inducements to do. I think one of the real appeals of small business or working with small business is the reality that while we’ve got a generation of baby boomers whose whole ambition was to retire early and travel the world, which they’re doing right now, the rest of us have recognized the fact that we’re all living longer and actually working is not a bad thing if you enjoy it. So I think you’re actually not seeing the wave or cliff of sales from 60 to 70 year old people because they’re healthy enough and they love doing what they’re doing and they’re going to be in it for longer. There will be though, but I think the more interesting insight or implication of stable listings and rising demand is what us economists really love. And that’s price, because I’m sure the price is going up and we’ve got a lot of inflation in the last few years, and it’s very easy to blame price increases in an inflationary world on things that aren’t real high inflation. But this tells you there’s a fundamental demand and supply imbalance, which again, what’s that mean? It means that will more people do genuine startups, that is not buy another business, but if they’re expensive, then just go and start one yourself, because there’s clearly a thriving industry market, what have you, and also there’s an equity exit, it appears, which is I think always an interesting, important perspective when you want to start a small business is how do you get out? And this is a market that seek business is matured and is clearly really thriving that you can get out. So look, I think this again is just another wonderful example of the insights we get.

Warren Hogan [00:04:50]:
And that then brings a whole new transparency to a market that then will just lower the cost of capital basically, and then people will be able to get in there, be more willing to put equity on the line, invest you can get easy, hopefully. I know debt capital is a whole new conversation and it is problematic at times, but I think this is nothing but positive for the industry. More we understand about something, the less risk premium is in there because of uncertainty.

Joanna Oakey [00:05:16]:
Yeah, absolutely. And oh, sorry, go for it.

Lucia Vuong [00:05:19]:
I just wanted to warren’s point, like one of the reasons we’re sharing this data is we really want to support our customers in the industry to have really meaningful conversations. So if you can. If you’re a broker and you’re saying to your customer, hey, your listing’s not getting very many inquiries. That can be a tough conversation to just say, trust me, they’re out there. But it’s going to take longer because it’s a niche industry or the location you’re in is not the highest in demand. We’ve actually got this data to back you up so you can say to them, look what’s happening in the market. And on the flip side, as Warren said, if demand is high and you’re seeing that on the front line, you’re seeing lots of inquiries, then you can talk to your customer about how they value their business. And it’s based on data.

Lucia Vuong [00:06:06]:
Like, I know those conversations must be very tricky. We have buyers and sellers telling us how they feel about valuations all the time. And I think what Warren’s talking about is really interesting because this supports those conversations. And for buyers and sellers, it’s a little bit more transparency. It’s like, why is my business taking so long to transact or to get inquiries? Maybe you’re in an area that just doesn’t have that much demand. Or on the flip side, it can help you plan your exit. If you’re not in a rush to sell tomorrow, which hopefully you’re not as a small business owner, then you can think about, oh, actually, demand seems to be increasing. Would this be a good time for me to sell? Should I start talking to an advisor, a broker? That’s what we want this data to drive, is those types of conversations.

Joanna Oakey [00:06:49]:
I love it. That just absolutely fantastic. And two, one of your points, is there any data that shows the length of transactions, so I guess the length of time that listings are staying on the site?

Lucia Vuong [00:07:06]:
Yeah, unfortunately not, jo. So we’d love to have that data too, on the transaction site to see the full cycle of that. But we don’t have that at the moment. We’re working on a few things which will hopefully get us deeper into how these inquiries are progressing. But in the meantime, we just have to work with the, the top of the funnel.

Joanna Oakey [00:07:27]:
Okay. And then going back to some of the trends, what is it, the buyers? Where is this highest level? What sort of industries and types of businesses are we seeing this highest, the highest level of buyer inquiry at, at the moment?

Lucia Vuong [00:07:43]:
Yeah. So one of the top industries or types of businesses hasn’t always has been kind of coffee cafe, restaurants types of businesses. And I think that’s probably for a number of reasons. I think it’s what people think about first, when they’re like, I want to be a business owner, what do I think I can do? There’s that. It’s also obviously one of the most visible types of businesses you can see. I think the surprising thing about that and other hospitality industries as well, takeaway restaurants, pubs, clubs and bars, they’ve all grown quite a lot, despite what we all know is quite a tough economic conditions to operate in. And I think there’s been some articles recently, recently about restaurants closing down and that kind of thing. So I think that’s been really interesting is that is still one of the highest growing industries.

Lucia Vuong [00:08:29]:
The other interesting ones that have changed quite a lot is cleaning businesses, medical and health businesses, and transport and storage. So they’re three of the highest growing industries that we’re seeing. We believe that is a simple reaction to Covid. So what are you, essential services. What are things that are related to health and movement of goods and services that won’t get shut down if we have another pandemic, but also health and medical. Of course, we have an aging population. A lot of reasons why that might be a very appealing industry for people. So those are the growing industries that are noteworthy and continue to grow.

Lucia Vuong [00:09:09]:
I don’t know if Warren has specific thoughts about those particular industries as well.

Warren Hogan [00:09:15]:
Yeah, I think it’s interesting. We always need to be a little careful with the industry data. And we know in this data set those industries are very dominant. But I can see one of the most, I think critical issues for all business and small and medium sized business in the next five years is going to be. It’s going to be tougher in a competitive sense and that’s labor shortages. We’re going to be all competing to get the right staff and the right skills. Obviously we’ve got this cost inflation issue, which I unfortunately, things not going away anytime soon and we’re going to have all this wonderful technology. Now the problem with SME’s is scale and risk appetite.

Warren Hogan [00:09:54]:
But I got this, just this idea which I’m really keen to watch this data to help inform is to compete. And you find a technology because access to technology is getting easier and easier. Whether it is just better software, AI, drones, anything like this that can you can make your business materially better. Well, if you do it and succeed, you’re suddenly every other business in your industry is cheaper because you can go and buy business, install your technology with the current customer base and make more p and l. I know that sounds a little bit fantastic, but all of this data, this industry data, the fact that we’re going to be able to watch it at the moment quarterly, maybe before long we’ll be looking at it monthly, is going to yield lots of insights into this to the whole conversation. Point is we’re going to learn so much more and the more the whole marketplace knows, the more activity there’ll be. Because I think one of the biggest problems that we’ve always known about, particularly in small business, is just the risk premium for everything’s through the roof, whether it’s the cost of debt, cost of equity, access to equity. And the better that businesses can operate, the more transparency is around marketplaces like this.

Warren Hogan [00:11:03]:
I think it’s all a positive. So yeah, let’s watch the industries. Everything that we know about in there seems consistent with the broader market. And I agree completely with Lucia on the point about the hospitality, which is obviously a high profile industry that’s under a lot of pressure. But we’re getting mixed signals. There’s some real strong points out there, clearly, and there’s still people who are clearly wanting to be involved. That’s going to be a really, I think that industry, there’s going to be a, we’re going to understand a lot more about it in the next twelve months. Because I think what you’re seeing is another big story out there is these so called zombie firms, weak firms.

Warren Hogan [00:11:39]:
We’re seeing insolvencies rise. We’re going to see more of that. But how does that affect in an industry level and who gets shaken out? And is it better to have a buy a really cheap business that’s going out the back door if you can do it better, et cetera, et cetera. Lots of really rich insights. I’m really looking forward to analyzing it. And hopefully we’re going to get more and more eyes on it as we put it out in the public marketplace and get more and more really good insights that we didn’t know about?

Joanna Oakey [00:12:03]:
So it’s absolutely fascinating. I could talk forever here and I’m just actually thinking as you’re talking, this increase in buyer demand in hospitality from my, and my insights are just the on the ground insights that the more micro level, obviously, but from my perspective, a lot of the buyers of cafes are people who’ve come out of corporate, someone who’s at the end and maybe to your point earlier, Warren, about this, our wave of retirees, but also this concept that maybe people don’t want to retire as early as they did before, bearing in mind life expectancy, maybe part of it is driven by people coming out of corporate not wanting to continue corporate employment but still wanting something to.

Warren Hogan [00:12:51]:
Do well, that’s right.

Joanna Oakey [00:12:53]:
Yeah.

Warren Hogan [00:12:54]:
It’s actually retirement from corporate life, which is a grind. I know there’s a lot more work life balance going around these days, but the reality of working in big business in senior roles is that you’re actually committed and there is a lot of equity in property, in residential property. So if you’ve had a pretty successful, even reasonably successful corporate career and have some equity, you can cash out of Sydney and Melbourne or Brisbane in the regional area and buy and live in like still live the same, a better lifestyle. Again, just that maybe that’s not merely the economist in me. More just this is more dinner table conversation. But doesn’t that sound like a reasonable proposition?

Joanna Oakey [00:13:36]:
It does. Certainly does. Warren, I’m with you. Sounds certainly could be a sensible answer. And while we continuing the dinner table conversation, I really, we really saw some slowing down in transaction activity in April and May. Now April, not a surprise going into Easter or April can be quite slow. May was something that surprised me. Usually it doesn’t carry forward to May.

Joanna Oakey [00:14:04]:
We’ll see May very robust, like we’re seeing now into June. We’re seeing a lot of activity. But May, it wasn’t there. Warren, what on earth was happening? Please explain.

Warren Hogan [00:14:14]:
Yeah, we’ll get the data in the next few weeks and get the numbers out to the market from the seek business point of view. But one thing I did, a roadshow after the budget around the country. And one, the really strong feedback I got from business was more that the consumer sort of stopped or really cut back. And the idea that I heard from a couple of people, which was really good, I thought a good insight was, you know, people went on summer holidays, it was an early Easter. So they got through that. They get back from that in early April and realize, oh, wait a minute, everything’s costing a lot more and I don’t have any. I’m going to have to be careful. And so I think there was this sort of, sort of pullback on a realization of just how much damage this cost of living inflation is doing to people’s leftover income.

Warren Hogan [00:14:58]:
They’re just having to spend more to get the same amount and that doesn’t leave much for savings. So I think that just has a bit of a sentiment confidence hit throughout the, on the ground. I think that I can pick it up all across the eastern seaboard, not as much in WA, in South Australia. So I think that’s got something to do with it. I think it is a somewhat temporary. We know there’s tax cuts coming. We know that we’ve got this cost of living happening. And of course, the other thing that’s most important, more important than any of that, is that we’re creating jobs.

Warren Hogan [00:15:24]:
There’s 200,000 jobs created in this country in the first five months of the year. 160,000 of them were full time jobs. So that income, I think, will start to get out there again, and that should shore up. So I think you are going to see a reasonable second half of the year and that should show up in this small business sector, particularly the customer facing businesses, which really what you’re saying is I’ve had a really tough time of it in the last six to nine months.

Joanna Oakey [00:15:49]:
Fascinating. I love it. I love a positive news story. This is.

Warren Hogan [00:15:53]:
You can have a couple of rate hikes with us.

Joanna Oakey [00:15:55]:
Hey, okay, hold back. Okay. What else did we see? Was there anything else surprising that you saw in the data? Anything you didn’t expect to see?

Lucia Vuong [00:16:07]:
Warren?

Warren Hogan [00:16:09]:
I didn’t expect it to have such strong correlations with the broader official statistics. And of course, consumers are over the cycle, over a five year period or ten year period, consumers are pretty steady and they move with the economy because they are the anchor of an economy. Business can be have some nuance to it. And this picked it all up. It was amazing. And I’m talking about matching up small business notional demand for purchase with overall business investment, including some of the biggest companies in this country, and et cetera, et cetera. So that was what surprised me, is just how, and it just tells me these psychological things which you touched on before, Joe, about sentiment and expectations and how powerful it is in everything we do. So that’s the one I think that really struck me, which of course was a great surprise because then I have some legs to add some value to this whole process.

Warren Hogan [00:16:59]:
So I’m happy about that. But also I think the state insights are really important because the old pre Covid two speed economy was this idea of mining, non mining, and that was really relevant and was real. I think we’re seeing in the last year or so, the idea of two speed, it’s more multi speed, that is state performance divergence. And I think that’s actually going to be happening a lot in the future. I’ve got this really positive view on WA in Queensland as real drivers. I’ve actually could be quoted as saying Queensland could be the biggest state in Australia in 100 years.

Joanna Oakey [00:17:34]:
Wow.

Warren Hogan [00:17:35]:
They just need a decent government anyway. But these data will give us again and I should. Sorry. The other thing I should say on all of this, it’s real time insight. We’re going to work hard to get this report out as quickly as we can. It’s a lot of data and we’ve got to make sure it’s all correct, but it’s what’s happening now. And the abs does a great job, but it’s usually what happened three months ago and then they revise their data. That’s another thing why things like the PMIs, the NAB survey, the Westpac consumer confidence, and the seek job ads, and that the numbers don’t get revised much.

Warren Hogan [00:18:08]:
So you’re not only getting them right away, you don’t get them changing on you. And that’s really powerful for everyone from policymakers, the RBI, maybe politicians could pay a bit more attention to what’s happening on the ground. And also, of course, financial markets, which is where I think there’s huge value, because that’s just a constant process of trying to price assets like the Aussie dollar or bonds and equities and stuff like that. So really excited about what this can deliver into the community at both real time and broader insights about where the economy is changing and what we’re going to keep an eye on for policy and planning purposes.

Joanna Oakey [00:18:45]:
I love it. And you’re 100% right. Like what an amazing report that you’re putting together. I just love, and I’m very data driven, too, but I just, it’s just fascinating seeing that connection between what we’re seeing on the street and then this broader data set that’s coming out. Lucia, from your perspective, from seek’s perspective, was there any surprises for you as you got into the data?

Lucia Vuong [00:19:11]:
I think it’s really the like amount of growth, like we were feeling it kind of day to day that inquiries were growing. We’re really happy with that as well. Our customers are obviously happier when we’re getting more inquiries, but it really wasn’t until we took a step back and looked at it overall that we saw how significant that growth was. And then when we brought in all the other things that we’d heard on the ground through our customers, but also all the kind of research we’ve done prior as well, it all made sense. Seek does another, like, seek employment, which of course, we’re part of, does a really great research piece called the laws of attraction, which looks at the what are people looking for in their careers and working life? And the biggest alignment there is really the number one thing that most people are looking for in their working life is flexibility, and flexibility can look like a lot of things. Like, it doesn’t have to mean working from home. It can mean just having the ability to choose the hours that you work, having more leave, having more flexible leave, all those things like that. I think, again, triggered by being locked down or having so much control taken away from us, people realize, I want to spend my time on things that matter a lot to me and even to what we were talking about earlier about people choosing to work differently instead of retire, they’re retiring from corporate life.

Lucia Vuong [00:20:36]:
What they really want is to live the life that they want to live, but also continue working. And that control of their time seems to be a big correlation with how just the sentiment that we’re seeing. So I think it was really exciting for us to, from Sieg’s perspective initially, it was like, isn’t that really interesting and great for our customers? And then when we started talking to Warren and it was correlating with economic data as well, we’re like, wow, that’s even more exciting. And so we’re just getting more and more excited every time we share. So trying to get the next report out quickly, get Warren’s eyes over it and, yes, so we’re pretty excited about what we found as well.

Joanna Oakey [00:21:14]:
Now seems like the right time to say to all of our listening audience, so you need to get yourself a copy as well. So how is it? How does this work? How can people get their hands on the report?

Lucia Vuong [00:21:28]:
Yeah, so you can just go to seekbusiness.com dot au marketplaceinsights and then just sign up. So that, and because as Warren said, we’re trying to get this data out quite frequently instead of just to download the report once or someone send it to you via a PDF. If you’re signed up, then you’ll get notified as soon as the next one’s out and we can keep you updated. So that’s the best way. Obviously. You can also hit me up on LinkedIn and I’ll shoot you the link. I’m sure you have links on your show notes as well. Yeah, just look us up.

Lucia Vuong [00:21:59]:
We’re talking about it everywhere.

Joanna Oakey [00:22:02]:
Fantastic. We absolutely do. If you’re running along the beach right now, or indeed if you’re on your commute into work and don’t have a pen and paper handy, it’s okay. We’ve got just go back to the show notes. You can click into there straight through, get yourself onto the list so that you can get each of these reports as they come out. And so you say that this is quarterly at the moment, but maybe we might be ramping up. Did you say maybe heading to monthly? Is that the plan?

Lucia Vuong [00:22:30]:
We’d love to do that. We don’t know when yet, but we’ll work towards it. Jo.

Joanna Oakey [00:22:36]:
Love it. Absolutely. Lovely. Okay, look, any last insights or summaries from both of you on, on the process or, Warren, maybe we might even get you to consult your crystal ball because we know you are pretty good at that crystal ball play. Maybe firstly to you, Warren, what do you think? Any insights or forecasts in terms of the business sector?

Warren Hogan [00:22:59]:
I think the issues that we’ve talked about are really front and center. It’s the reason this economy is not doing what the RVA wants. That is the slowdown in consumption that we’ve seen, really should have seen businesses pull back, but they’re actually really powering ahead. And it’s not just making heaps of money and doing heaps of turnover, it’s investing and hiring. And so, look, I think we’re going to see an economy that’s resilient. That’s been the problem. They’ve underestimated the resilience of it and we’ve got to get rid of this inflation. So, yes, the bad news is we probably do need interest rates going up a little bit higher.

Warren Hogan [00:23:32]:
But I can’t emphasise enough this enough, that is to keep us on this narrow path that we have this resilience. We’re not this fragile economy that’s about to fall into a hole at any second. But if we don’t get on top of inflation and then we leave it till next year and we start chasing inflation and have to jack rates up by a percent or more, then that’s when the real problems come. So I don’t think we’re going to do that. I think the RBA is going to be up to it and we’ll see a couple of rate hikes, but that’ll just keep us steady. And of course, I’m very positive longer term because it’s a great country and all the things that have got us to this point still remain in place. And in fact, they’re getting better. Small business sector is going to get better and better.

Warren Hogan [00:24:10]:
So I’m very optimistic, Warren, I love that.

Joanna Oakey [00:24:13]:
I love the optimism. That’s fantastic. And Lucy, how about you?

Lucia Vuong [00:24:16]:
I think. Just wanted to say we’re really open to feedback and questions. I think even the questions you’re asking, Jo, help us think about do we have that data? Can we look at it with a different lens? So I’m really keen for people to reach out and just ask me if we don’t have the data. One of the really good things about you asking for it is we’ll think about can we start capturing that and what could that tell us in, let’s say, 1224 five years time? So really keen to start a conversation with anyone who’s interested in the data and wants to know a little bit more. We might not be able to answer it today, but that’s really helpful for us to think about what we should be capturing on our marketplace.

Joanna Oakey [00:24:55]:
Do you know what? That’s a really good point as well. And maybe it’s a call out to our listeners to get yourself a copy of the report and ongoing copies. And feel free, obviously, to send your response back to SQL or in here to our podcast for any ideas you have for data you’re interested in seeing. Because I think we need to do this discussion again when you have your next report because I’m super interested in the outcome of the data and of course, your analysis. Warren, look, it’s just such an important, I just haven’t heard people talking about connecting and really getting into this data here in Australia and all of this. The concept of what is the value of a business is really lacking transparency here in Australia and how that whole side of business as business owners are moving towards an exit into the future work. So I think all of the work we’re doing here and you’re doing here is just so absolutely critical, so huge. Thank you for just embarking on this project.

Joanna Oakey [00:26:00]:
But also I thank you for coming on The Deal Room podcast and sharing it with us. And I do hope you’ll come back when you’ve got the next report so we can see where we have moved next.

Warren Hogan [00:26:12]:
Thank you. That’s fantastic.

Lucia Vuong [00:26:14]:
Jo, thanks for having us.

Joanna Oakey [00:26:16]:
Well, that’s it for this episode of The Deal Room podcast. I’m sure you will agree that this two part series was full of insights, and if you’re keen to get a copy of the report we’ve talked about throughout this episode, be sure to check the show notes out. You’ll be able to download your copy of the Seek Business and Judo Bank Marketplace Insights Report and subscribe. Most importantly, to make sure you receive the next one, I will certainly be doing the same thing. You’ll also be able to find out how to connect with Warren and Judo bank for more insights, as well as Lucia and how to access some of the resources on offer from seek business, Australia’s largest online business for sale marketplace and if you haven’t yet, head to the show notes right now to get those resources. Given the pace of change we are seeing at the market right now, if you are advising anyone who is buying or selling businesses, or of course if you’re looking to acquire or exit yourself, keeping across trends is absolutely critical right now. So make it a point to seek out thought leaders in the market who are across these trends. Stay ahead of the game.

Joanna Oakey [00:27:33]:
I’ll also throw in there that Aspect Legal has invested heavily in ensuring both clients and advisors have access to high quality resources to help navigate the buying and selling journey, including our vendor finance and employee entitlement deep dives through to our dedicated client resource hub to help step through the business sale contracting journey. This is one area of law where expertise genuinely leads to smoother deals and better results, a view echoed by business brokers we work with across Australia. Our resource hub is a great place to start. Head to the show notes for a link to that now, if you’d like to know more, we’d be happy to point you to specific resources or if you’re buying or selling right now, we’re here to help and we’d love to help you. Just head over to our website at aspectlegal.com.au and there you can organise a free consultation with me on one of your legal legals at aspectlegal to help with your transaction. Well, we do hope you’ve enjoyed this transaction and you’ll find our next episode in your inbox shortly. Oh, and by the way, if you haven’t yet, don’t forget to subscribe. So you do.

Joanna Oakey [00:28:45]:
That’s it. You’ve been listening to Joanna Oakey and the Deal Room podcast, proudly brought to you by our commercial legal practice Aspect Legal. See you next time, ladies and gentlemen.