RADIO INTERVIEW on SUMMIT ASK THE EXPERTS

20/06/2006 - Kevin Homann is interviewed by Bronwyn (Summit Ask the Experts)

Bronwyn

Joining me in the Studio this evening is Kevin Homann, a director at Spirit Capital. Thank you very much for joining us in Studio. Looking at an interesting concept this evening and that being that this is the right time to perhaps sell your business if you are a small, medium enterprise.

Kevin Homann

Yes Bronwyn, what we have found over the last couple of years is that valuations have increased quite dramatically in the private market.

Bronwyn

From about 2001?

Kevin Homann

Yes I’d say … from a time when the stock market started to run, and that kind of filtered into the private market. Valuations have increased from … Yes I would say three, four, five P multiples and then those who have gone up quite dramatically and can extend well above ten, depending on the nature of the business; its competitive advantage etcetera, so …

Bronwyn

Is there a demand out there and specifically in what sector?

Kevin Homann

I think there is demand across all sectors. You know, we are talking about businesses here that are cash positive, they have been going for some time and they have been successful over a period of time, and that kind of business has always got a demand, and we found that demand has increased over the last year or two.

Bronwyn

Kevin is there a pick up of entrepreneurs knocking on your door saying … here we are … and what can we get for it?

Kevin Homann

Yes we found that a lot of people have started to realise that there is an opportunity and, you know, the nature of an entrepreneur is he tries to capitalise on an opportunity, so, you know, we found that there is a lot more activity in that market and people are actively looking to exit private businesses.

Bronwyn

What about the emotional attachment? People getting very attached to their businesses that they started from infancy?

Kevin Homann

Yes we found over the years that a lot of our clients treat their businesses like a baby. They have been in their business for thirty years and it is something that is very close to their heart and you know they are very emotional about it. It takes some time for them to … to come to a decision to exit the business and sometimes the catalyst is a retirement or some other life event, but, you know, these things are happening at the moment.

Bronwyn

You know you talk about catalyst. Is a catalyst for exiting your business now, because we are seeing a downturn, or relatively more volatile markets?

Kevin Homann

Yes I think its both. I think the catalyst for now is that it is to take advantage of the current situation. So, if you are looking at an exit over the next couple of years, now is a very good time to do it. There is no guarantee that in a year’s time or two year’s time that the market will still be as buoyant, so now is a good time.

Bronwyn

One of the problems that possibly faces somebody wanting to sell their own business, is that it seems to be such a complicated process and that documents are required here, there and everywhere. Is it really so complicated?

Kevin Homann

No, it is not very complicated at all. There is a certain process that needs to be followed and that is quite a defined process.

Bronwyn

Do you do the due diligence?

Kevin Homann

No, we don’t get involved in due diligence, we leave that to the professional services firms or auditing firms, but there is a defined process that needs to be followed and it is important to follow that process properly. There is a lot of confidential information that gets disclosed during a sale process and it is important that that confidential information is protected and that the flow of information is steady and it is open and it is honest.

Bronwyn

Obviously one of the key requirements is to have a really comprehensive transparent set of financials. Do you find a number of people come to you and don’t have their house in order, so to speak?

Kevin Homann

Yes it is a difficult question to answer. You know the nature of private businesses over an extended period of time in this country is that … they haven’t always been as …

Bronwyn

It is a family run business …

Kevin Homann

It is a family run business … so, you know, they do things sometimes that …

Bronwyn

Procedures merely aren’t in place …

Kevin Homann

Absolutely. So it takes time to extract a clear financial picture and it is important to develop that financial picture. Our advice is always to … is always to actually prepare the business over a period of time and make sure that that financial information is trustworthy, it is reliable and it comes through from a valuation perspective.

Bronwyn

Do you think that we are going to see people taking advantage of the market now or when will the lack of market that we are seeing the volatility and really coming through quite significantly, taking that step and selling?

Kevin Homann

You know, I think it depends how volatile the market becomes, and how long the volatility lasts and the downturn lasts. There has been something of a downturn in the last couple of weeks, and if that becomes an extended downturn, then I think people are going to stand back and wait for that to come out of the market. If that is a short-term volatility, a short-term downturn, then I think the time is right. I think people should get out there and they should start being active in terms of … if they are looking for an exit in the next couple of years they should do something about it now and push hard.

Bronwyn

Kevin Homann, Director of Spirit Capital. Thank you very much for joining us in Studio this evening.

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