ACQUISITION SERVICES SUPPLIER OF THE YEAR
With the rise in interest rates and National Insurance, as well as the ongoing repercussions of the pandemic, many businesses are starting to feel the pinch.
This is an ever-increasing challenge for lettings and estate agency businesses that are struggling with rising staff costs, mortgage rates impacting estate agency revenue, and uncertainty around a potential future recession.
Lucy Noonan, Founder of leading sale and acquisition property-business, Atomic Consultancy, states “in times of uncertainty, it’s normal for businesses to hunker down and focus on stability rather than growth.
This can often have a knock-on effect on M&A activity, as borrowing becomes harder and demand for businesses falls, making them less valuable. However, despite the challenges faced by the industry, there are still plenty of opportunities for those looking to sell their business.
In fact, now could be the perfect time to maximise the value of your organisation.”
Staffing costs are currently at an all-time high, with rising salaries and recruitment becoming increasingly challenging. “Our advice to all lettings and estate agency businesses is that they should have no more than 40% of their overall costs in staff.
In some instances, we are seeing this peak at up to 80%, which makes businesses much less profitable. An increase in NI will further impact this.
A huge benefit from M&A activity is the ability to pool and combine resources, allowing businesses to benefit from synergies which will positively impact their staffing costs and, in turn, their bottom line.”
In recent years, the value of businesses in this sector has increased significantly. During the last five years, standard multiples for lettings and estate agencies have been 1.5x managed incomes and in some parts of the country, businesses are now selling for 2x their managed income – a significant premium.
“Currently the demand for businesses is high" continues Noonan "but this could change if buyers struggle to borrow, which will in turn affect market value. We are seeing a real trend forming here, with businesses such as Preston and Baker and Smart Homes, selling their lettings portfolio whilst the value is high, and retaining their estate agency portfolio. This is a clever decision that mitigates risk, whilst maximising value in these uncertain times.”
With all of this in mind, Atomic Consultancy believes now could be the perfect time for an exit strategy.
Here’s why:
1. There is still high demand from buyers
Despite the current challenges faced by the industry, the demand from buyers is still running high, for businesses in the lettings and estate agency sector. This industry is ripe for consolidation, with many small businesses looking for scale and the efficiencies that come with it. There are also a number of private equity firms that are looking for opportunities in this sector.
2. You can take advantage of favourable market conditions
The current market conditions are actually very favourable for sellers, with businesses in the lettings and estate agency sector fetching high multiples. This is because there is a lot of money chasing a limited number of quality businesses, which has forced the increase of prices.
3. You can negotiate a good price
With high demand from buyers and favourable market conditions, sellers are in an incredibly strongposition to negotiate a good price for your business. This means that you can maximise the value of your business while securing a good return on investment in the process.
4. We don’t know what the future holds
With so much uncertainty for the future, estate agency businesses could be severely impacted due to the nature of their business and a lack of guaranteed income. Managed lettings, however, are seen as more stable, with longer-term contracts in place, making lettings agencies higher in value at present.