Dru recently had a conversation with Newcastle Business Broker Rick Di Mecola to touch on some important considerations when taking a distribution business to market in Australia.
Some key insights from their conversation were:
Deal Structure – Be Open
Rick’s most recent distribution industry transaction was extremely fluid. Both changing from a business sale transaction to a share sale transaction and changing ownership structure in the last hours. The advice for sellers being to stay open to different ideas. Deal structures very rarely match exactly what you had in your mind when negotiations began. It’s important to stay fluid to get deals over the line.
Sales Price Maximisation – Customer Diversity
When buyers are assessing businesses to buy, they’re not interested in businesses that are too risky. A big risk in the distribution industry is customer concentration. If 50% of work comes from one client, this is a major concern. Should the client leave after they’ve made the acquisition, they would have potentially lost half of their investment. Distribution businesses that sell for the highest price multiples typically have no customer responsible for more than 20% of sales.
The interest for distribution businesses remains strong across price ranges. The typical buyer profile below a $500k asking price being an individual with most deals above $500k transacting to an industry buyer.
If you own a distribution business in Australia and would be interested in having a chat about your businesss, please don’t hesitate to book a complementary discussion with our team here.