The short answer is, it’s too early to tell. But if I have to make a guess I would probably say “NO!”
There are three fundamental components of business valuation: stock, plant and goodwill. Stock is what it is, and the value will probably not change. Plant and equipment (tangible assets) values may come back a bit, mainly because there will probably be a lot of second-hand plant and equipment available as some businesses close down. Goodwill (intangible asset) value may also reduce, for a number of sound reasons.
Firstly, intangible asset value is based upon the seller’s discretionary income over the preceding two or three years. Right now, we don’t know if Post-COVID 19 will be similar to Pre-COVID 19. Will revenue and profitability be higher, lower or the same? For this reason, I expect banks will be extremely cautious about lending for at least the next 6 to 12 months.
Many business buyers mortgage their largest asset (their home) to buy a business. If the banks are cautious about house values, they will be even more cautious and conservative about lending criteria. On the positive side, at least interest rates will be as low as they have ever been. As a counter to the above, we do expect to see recently unemployed or redundant, anxious business buyers who do have equity in their homes but can’t find another job. I believe we may also see large numbers of ex-pat Kiwis coming home with money to invest. Over time we should also see an increase in high net-worth individuals emigrating because they recognise New Zealand as a safe haven.
Will new buyers to the market outweigh any negative factors induced by lockdown? My guess is that business buyers have a distinctive advantage in the short term as long as they can raise the money. Vendor finance may need to play an increasing role in business sales.
