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PEGS PEGSThe outstanding feature of the New Zealand business sales market in recent times has been the activity of the private equity groups. High profile targets have been Independent Liquor and Kathmandu, and, as I write, Yellow Pages. The promise of high returns attracts investors. And the private equity funds look to acquire companies where earnings can be improved through operating and financial efficiencies. With the growth of private equity funds has come increased competition – and higher prices being paid. More money chasing fewer opportunities is a recipe for disaster. As Rozanna Wozniak said in a recent article in the Chartered Accountants Journal: “the eventual default of a private equity-backed company or a cluster of small equity–backed companies seems inevitable.” What does this mean for the SME world? It is causing upward pressure on prices for mid-sized businesses and an increase in merger activity as businesses attempt to grow through acquisition. This tendency towards higher prices then filters down to smaller enterprises. With the first of the baby-boomers hitting 60 last year we confidently expect a huge inter-generational business and wealth transfer over the next 10 years. It is our belief that business ownership provides the greatest opportunity for an individual to achieve income growth, equity build-up, independence and personal growth. Owning your own business may well offer better returns and lower risk than investing in Pegs? Warren Buffett Warren Buffett’s annual newsletter to Berkshire Hathaway’s shareholders is always a delight to read. With a growth rate of 21.4% compounded annually for the last 42 years Buffett must rank as the world’s best business valuer. While his ‘buys’ are very large by New Zealand Standards his ‘principles’ remain simple: - “be fearful when others are greedy, and be greedy where others are fearful” - “almost all newspaper owners realise that they are constantly losing ground in the battle for eyeballs” - “over time, markets will do extraordinary, even bizarre, things” - “how would you summarise your approach? We try to buy stocks cheap… So much for Modern Portfolio Theory, technical analysis, macroeconomic thoughts and complex algorithms.” At 76 Warren Buffett still ‘tapdances’ to work – to a job that he ‘loves’. Inspirational. |
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