Brokers note a rise in business acquisitions amid risks

The 34 per cent year-on-year decline in the average value of invoices signalled a drop in forward orders.

This decline is primarily attributed to contracting consumer demand, causing a significant ripple effect down the supply chain, as shown in the report.

Furthermore, CreditorWatch forecast the business failure rate to increase to 5.78 per cent over the next 12 months from the current 4.21 per cent.

Director at Perry Finance, Cameron Perry, is engaging in “a lot of hard conversations around borrowing capacity”, given the increasing interest rates, with a cash rate at 4.35 per cent.

“This has largely affected our investor base, but has also been challenging for businesses seeking further lending,” he said.

Consequently, he had been working on a couple of business acquisitions – including an industrial supplies company and a transport company.

Managing director at Professional Lending Solutions, Phil Verheijen, agreed that there have been several instances of business acquisitions, both from new clients and existing clients buying out competitors.

“Some of this could be as a result of tighter markets causing some consolidation,” Mr Verheijen said.

He observed that the impact could be due to businesses coming off stronger in historical years 2021 and 2022.

Consequently, they want to sell their businesses before witnessing reduced profits and turnover in 2024 and 2025, thereby diminishing the value of their businesses.

“Further to this there are also a lot of business owners who are very worn-out after dealing with restrictions and high growth through COVID-19. These people are looking to exit as business owner altogether,” Mr Verheijen said.

From a consumer-facing market perspective, he’s observed a decline in turnover and/or profit for existing clients in 2023, primarily due to margin pressures.

This trend is particularly noticeable in the retail and online shopping sectors, where discretionary spending has decreased.

“Some of these clients are looking to diversify and create additional opportunities, some have had to cut back on staff to improve net margins,” Mr Verheijen said.

Indeed, one of the sectors most affected by a slowdown in invoice values has been the construction sector.

CreditorWatch reported that the construction sector is still experiencing high rates of external administration, with many businesses struggling to balance high supply costs with lower demand for new housing and renovation work.

Mr Verheijen expressed concern that the construction industry is “most at risk” and is keeping a close eye on it.

“This is certainly an issue when contracts in place have been entered into greater than 12 months ago,” Mr Verheijen said.

“Given the quantity of large projects underway in SEQ that may be why this area is seen as a greater risk.”

CreditorWatch’s report noted South-East Queensland dominated the list of highest risk regions, alongside Western Sydney.

“These regions are particularly sensitive to interest rate changes, given the relatively high levels of debt among both businesses and households and lower than average incomes,” CreditorWatch’s Anneke Thompson said.

Additionally, the worst-performing regions all have relatively young resident populations and the rising interest rates are disproportionately affecting the spending power of this group.

This impact is being felt by businesses in these areas, particularly in retail, food and beverage sectors.

A year-on-year comparison of capital city CBDs revealed that Melbourne City is the most improved CBD area over the past 12 months, with a 6-point increase on the business risk index to 32.8.

Meanwhile, Sydney Inner City is the least improved CBD area with a slide of 4.8 points down the index to be the worst-performing capital at 24.1.

“The Central Melbourne area is benefiting from an improvement in foot traffic in non-working hours – namely weekends and night-time,” Ms Thompson noted.

“The list of best-performing regions is more of a mixed bag, with areas in regional Victoria, inner-city Adelaide and North Queensland making up most of the top 10.

“These areas are typified by below-average property and rent prices and above-average incomes.”

CreditorWatch’s prediction for the business failure rate indicated a significant increase from the current rate of business closures.

Moreover, the ATO is pursuing unpaid tax more vigorously and many businesses still owe significant amounts of GST following the end of COVID-19 payment “holidays”.

[Related: Unpaid invoices mean SMEs face potential $22bn shortfall]