Factors Driving Higher Business Sales Price

1. Consistent industry growth rate

Hopefully it was clear on the previous slide that not all industries grow at the same rates. And so if you’re in an industry like health care with structural tailwinds being, you know, an aging population in Australia, you’re probably likely to get a better multiple then. All else being the same, then a business that was in a declining market,

2. High margin business

High margin versus low margin. So if you’re in a high margin business in a bad year, there’s still going to most likely make money. Whereas a low margin business in a bad year, the risk of actually making a loss is much higher, in which case the new owner is putting his hand in his pocket to fund that loss. And so, yeah, high margin businesses for that reason are valued more highly

3. Customer contracts

This is twofold so long term customer contracts, but also diversity in the customer base. So if you’re if you’ve got, you know, the customer contracts that are many years long versus 30 day terms, obviously the buyer’s going to pay a higher price for the surety in a longer term contract. And then diversity of the client base is the same concept in that, you know, if you’ve got all of your earnings coming from one or two key contracts, if they fall away, then then the risk to the business is much greater than if you know that there’s quite a diverse revenue stream from diverse range of clients,

4. Professionally managed business

This is simply not being found a dependent growth track record. So in information memorandums a lot of the time you’ll see a forecast for that for the year, for the next year. And if you’re making that same forecast with on the basis that it’s the same rate as you know that the company’s achieved every year for the last 10 years, it’s much more believable from a buyer’s perspective than if the growth has been flat for 10 years. And then you’re saying it’s going to be 25 per cent up the next year. And for that reason, you know, history of growth is indicative of a higher sale

5. Price synergies

This is probably the key one here on this slide. But I’ll cover this in more detail on another page. So I’ll just skip that for now and then obviously sale process,

6. Competition and timing

It’s that is the aim of a well-run sale process to extract competitive tension, or at least the appearance of competitive tension, which is multiple buyers bidding against one another and in the process bidding the bidding the price higher and then timing. Sometimes you just get the right buyer at the right time.