Business sales predicted to increase in 2024

The latest quarterly report from business brokers ABC shows that demand for business sales has reached historical highs, with 16,951 confidentiality agreements signed in the twelve months up to the end of 2023 – 30 percent ahead of the same period last year. 

An increase in confidentiality agreements signed would usually result in increased completions. However, actual business sales were down 7 percent over the same period, which ABC Managing Director Chris Small attributes to cautious purchasers delaying decisions due to economic and Government uncertainty in an election year, as well as valuation gaps not being resolved between purchasers and vendors. 

In fact, ABC’s figures suggest the average business price recorded an annual decrease of 5 percent. This is despite the fact that the number of businesses listed for sale on TradeMe decreased by 4 percent over the 2023 year, and ABC’s own new listings were down by the same amount. 

However, the company suggests business prices will bounce back, starting in the first quarter of 2024, with both volumes of signed confidentiality agreements and prices already showing increases.

‘We are forecasting a 5 to 7 percent annual increase in business prices in the next twelve months,’ says Mr Small. ‘The key drivers behind the increasing prices will be:

• Ongoing record immigration which will continue to fuel demand;
• A flood of Merger & Acquisition activity to occur in the first half of 2024 that had previously been on hold due to the Oct-23 election;
• Investors feeling more confident about acquiring new businesses and meeting price expectations given interest rates are now forecasted to decline later in 2024;
• Unemployment is expected to increase in 2024 which will bring higher volumes of corporate refugees and out-of-work contractors to the market, which in turn will stimulate the “Buy Yourself a Job” market.’

The report suggests the average pre-tax yield for investing in a privately-owned business equates to 29 percent, compared to the average residential property yield of 4 percent, term deposit of 6 percent or the NZ share market at 3 percent. However, it acknowledges the higher risk profile of business ownership.

It should be noted that the ABC data applies to the resale of existing businesses, rather than the sale of new (greenfields) franchise outlets which offer greater scope for growth and higher returns for those prepared to start from scratch (see Why Buy New?).