A good time to buy?
Open a newspaper, or watch a TV chat show and you will see the same thing, gloomy predictions that the economy is falling off a cliff. We are warned that things are going to get so bad that we are all going to lose our jobs and our houses and there will be soup kitchens in Westminster. It’s all a load of doom mongering nonsense of course, but economies thrive on confidence and when confidence is eroded by negative media coverage we can easily talk ourselves into a recession.
In fact things are nothing like as bad as the media would have us believe. There is no denying that there is a serious crisis in the financial sector. The banks are being very choosy about who they will lend to and the cost of borrowing has risen. This has had a dramatic effect in the housing market. Fortunately the Bank of England is working to address the problem and the general consensus is that the massive injection of capital that they have made into the money markets will help to stabilise interest rates and settle the housing market. Ignoring the fall in house prices the economy otherwise remains very strong. The number of people in employment was up by 152,000 in the December-February quarter and up by nearly half a million in the past year. There are nearly 700,000 recorded job vacancies and the unemployment count is the lowest it has been for over 30 years. Employment is the major measure of economic health and it is difficult to see a recession when the employment market is so healthy. This is why the experts continue to predict economic growth this year.
The employment scene may be buoyant but there are never the less a lot of good quality recruitment businesses for sale at the moment. These are not, in the main, distressed businesses, they are successful, well run businesses where the owners have recognised that values have fallen since last summer but decided that they don’t want to hang on for another 2-3 years until values peak again.
It is true that some buyers have faded away in recent months, either because they can’t obtain funding or they have lost confidence. At the same time other buyers have become more active. These buyers are well funded and they see this time of uncertainty as an opportunity to make strategic acquisitions. They are either cash rich or they are able to borrow at rates which, although higher than of late, remain very low in historic terms. Quality businesses that were not previously available to buyers are now coming onto the market at prices which are in many cases lower than they were last year. If, as the experts predict, the financial crisis turns out to be a relatively short lived affair, then these buyers will be in a fabulous strategic position when confidence returns. If the crisis turns into a recession it is likely to be shallow and short lived and buyers will have acquired a portfolio of good businesses which will help them survive the downturn and create real opportunities when the upturn comes.
Would these buyers be wise to wait to see if there is a recession and buy when prices are at rock bottom? The answer is no. It is a fallacy that good businesses can be acquired cheaply in a recession. Good businesses do not come onto the market in a recession; the owners tighten their belts and wait for the upturn and the return to higher business values.
There is a real opportunity for the bold buyer at the moment. The uncertainty has prompted large numbers of owners to consider a sale. Such opportunities come rarely and it may be many years before so many quality businesses are again on the market at the same time. Has there ever been a better time to buy?
John Bissell is the senior partner at REC Business Partners LBA.
He has worked in the recruitment industry since 1979. A qualified Chartered Secretary he has held board positions in a top four UK recruitment company, during which time he acquired over 40 businesses.
LBA
The Old Rectory
Denver
Norfolk
PE38 0DF
England
john@lba-info.co.uk
Telephone: (01366) 385878
