‘Corporate refugees’, migration and rate cut spur business sales

Monday, 16 September 2024

On the Tova podcast, industry leaders suggest lowering rents, reducing transport costs, and investing in the arts to revive struggling hospitality and retail sectors. Kate Sylvester and others stress the need for urgent action.

Cash-rich offshore investors are still interested in New Zealand businesses but an increasing number of locals are keeping demand strong.

A growing number of redundancies around the country creating ‘corporate refugees’ who opt to start their own businesses, along with liquidations, insolvencies and general business difficulties on the rise, and an official cash rate cut with possibly more to come, mean locals are seeing an opportunity, say those involved in such deals.

But the businesses being bought are not at the ‘sexy’ end of the spectrum ‒they tend to be mature, generating cash, and providing ‘needs’ rather than ‘wants’.

Chris Small, managing director at business brokerage ABC Business Sales, told The Post August was the company’s busiest month in three years, with the OCR cut leading to a “massive increase” in demand for small-medium enterprise (SME) sales.

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Sales in August were up 30% on last year at 40 businesses sold during the month, with the biggest interest in import and distribution and healthcare equipment manufacturing.

Small said sales were “already going strong before the OCR cut” between June and August due to increasing corporate and Government redundancies and migration.

“In a reasonably tough economy, it’s counter-cyclical. It shows that when things are tough in the economy, people are buying more businesses to replicate their income and leave corporate New Zealand,” Small said.

Migrant demand

“A lot of demand is coming from migrants and offshore investors because New Zealand businesses are held in high regard and generally have good return on investment,” Small told The Post.

ABC’s market Intelligence report for the June quarter showed that increasing demand came largely from new migrants to Aotearoa and what Small called “corporate refugees”, those looking to rebuild lost income due to corporate layoffs and avoid more redundancies.

ABC Business Sales managing director Chris Small says the company saw record trading in August.

Sales data showed new migrants from the Philippines, India and China were some of the biggest domestic buyers, which Small attributed to residents looking to establish long-term family businesses.

The firm forecast demand would keep tracking upward, and the price of businesses would increase by 4-6% in the next year, as investor confidence recovered, unemployment remained high, and borrowing became cheaper. Immigration at current levels would also continue to stoke demand.

“By the start of 2025 we expect a material lift in demand to continue which will result in a shift back towards the sellers’ market.”

Traditional, not sexy

Baker Tilly Staples Rodway corporate advisory services director Nick Li says the OCR cut has ramped up local demand for business ownership.

Baker Tilly Staples Rodway corporate advisory services director Nick Li said that while overseas buyers “remain acquisitive”, last month’s OCR cut saw increased demand from local businesses looking to expand their portfolio.

More risk-averse local buyers are starting to ramp up their interest, “taking comfort in changing economic winds”. These are cash-rich buyers who have been waiting for the right moment to strike, he said.

To cope with soft consumer demand, the firms being snapped up the quickest are largely “more traditional, not sexy” and in the business of producing necessities, Li said. Those in the luxury end of goods and services were less attractive, he added.

However, “people are getting a bit more industry agnostic”, he said.

“They're willing to consider anything and everything as long as they are cashflow positive and profitable.”

Those in high demand are relatively mature with positive cashflow and gross earnings about $1 million, rather than startups. Li said there was a move away from startups and tech businesses because of the heightened risk, and because buyers wanted the benefit of established governance systems, employees and customer bases.

But quality companies with good cashflows were not yet coming to the market in droves.

“Rather than creating a feeding frenzy just yet, transactions are still taking longer to complete than during the Covid boom,” Li said.