PwC gets ready for exiting baby-boomers
Business adviser PwC has got itself a real estate licence in anticipation of 300,000 baby boomer-owned small and medium businesses coming on the market in the next five or so years.
The national accountancy and advisory firm has launched PwC Business Sales to help clients prepare their businesses for sale in what is expected to be a big bubble of retirement exits.
It is a national service with the backroom work being done by PwC Waikato, which has a corporate finance practice, and its target market is businesses valued up to $20 million.
Waikato partner John Dobson said PwC's corporate finance practice had long advised on sales of businesses valued at $20m to $1 billion, competing against merchant banks.
"Succession for PwC has been a big part of our advisory portfolio . . . but we could see a big (SME) bubble with baby boomers coming up, all looking for a way out."
Dobson, who has obtained a real estate licence to sell businesses, said according to various studies at least 300,000 small-to-medium enterprises were expected to come on the market in the next five to seven years.
"In the last five years it's been very difficult getting transactions across the line, so we have to think of different ways of transitioning people from their business," Dobson said.
"Putting up a sign and saying ‘for sale' for ‘X' dollars is not going to work and a lot of these people have fantastic expectations of what their business is worth."
But Dobson said PwC was not going to become a real estate agent, and would not be selling "massage parlours and cafes".
"Our niche is taking the package of services we have now and bundling them up and providing a sort of turnkey solution to people. The traditional approach (of business brokers) is ‘list it, we'll get a price for you and sell it' - but the solution is often not a sale.
"For a lot of people today the best solution may not be to sell their business but to change the way they actually relate to their business, (for example) they become owner of the business not an operator, they put in professional management, they step back and become a governor not a worker."
Dobson said selling a business for $5 million and putting the money in the bank for a 3.5 per cent return was not going provide much to retire on in comparison to continuing to have a business which returned 30 per cent, albeit with some risk.
In a one-stop shop design, PwC will do the accounting, tax, structuring and liaise with solicitors in transacting a sale.
The Waikato PwC office in Hamilton would provide the support for the new division, said Dobson, who has been valuing businesses for 30 years.
He believes PwC is the only one of the Big Four business adviser firms to have a real estate licence.
Dobson said the best way to maximise the market value of a business was to have a contestable sale process.
"It's the same as a house auction. If there's one bidder it's not very exciting.
"But often timing is critical, if the business is not prepared for sale carefully, you won't maximise value. People underpin the value in a lot of businesses - if you haven't got good people you've nothing to sell.
"One of the biggest problems that affects value in an open market is the dependence on the owner.
"A lot of owners think they can put a sign up saying ‘for sale' and walk from their business and someone is going to pay good value.
"But all the intellectual property is in his head, all the relationships are very close to his heart, and they wonder why they can't get a decent multiple on their earnings when they sell it. "
Spending a year or two getting a business in top presentation for sale adds a lot of money to its value, Dobson said.
That preparation can include introducing an equity partner.
An example was a "wonderful, very profitable" business he was currently helping. The owner had taken it as far as he could and was negotiating the sale of an 80 per cent interest to a smart investor planning to clip on two or three similar businesses to it.
"Our client would be getting a pretty good price for his 80 per cent but when he finally sells the 20 per cent in five years he should get twice the price for that 20 per cent."