Economic conditions to drive further spike in acquisitions: Hayes Knight
Established businesses with robust cash flow and strong balance sheets are increasingly eyeing acquisitions of smaller businesses, the accounting firm says.
Hayes Knight director Ray Itaoui said a perfect storm of increased costs and labour shortages is still putting pressure on margins for many businesses, particularly as demand decreases.
Mr Itaoui said a decline in business-to-business spending as businesses look to reduce excess levels of stock is also harming some businesses.
This environment is creating acquisition opportunities for larger firms in a better position to weather tougher economic conditions, he said.
“We’ve seen a trend in consolidation happening for a while now but we’re now starting to see it everywhere now. You have big businesses that can absorb some of the ups and downs and they’re able to put some money on the table for a business that might be struggling,” said Mr Itaoui.
This is also the case in the accounting industry, he said, where a lot of the large second-tier firms are acquiring smaller practices as they look to generate growth through acquisition.
“We’re seeing acquisitions across a lot of different industries at the moment with our valuations team bombarded with requests for business valuations as part of these transactions,” he said.
The increase in business acquisitions is also being driven by the sale of Baby Boomer businesses where the owners may be moving or are getting to an age where they can’t continue to grow the business, he added.
Despite a strong uptick in acquisition activity, Mr Itaoui said not all businesses are selling easily, with niche businesses or those with large capital requirements sometimes struggling to find a buyer.
“In some industries, it’s an easy exit because there’s a lot of demand but with some types of niche businesses it’s proving hard for them to exit,” he said.
“I have some clients who are getting constant offers for the purchase of their business but then I have other clients who have really strong profitable businesses that can’t find a suitable buyer.”
In some cases, Mr Itaoui said buyers are struggling to get the finance to be able to make the acquisition.
“We have one client operating in the manufacturing industry and the business requires large capital amounts to be able to operate. There’s a buyer who’s willing to buy the business but they can’t get the funding because the banks aren’t willing to lend like they used to for those types of businesses.”
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