Business Brokers

Africa offers exciting opportunities to build large, profitable businesses as many Africa-based companies look to access new growth markets as the continent’s population is young, fast-growing, while rapid technology adoption makes the continent a fertile arena for innovation. However, Africa’s business environment remains limited as investors do not always know or understand the business complexity, political environment, and historical context to make informed decisions. A business broker is a professional who helps buyers and sellers of businesses navigate the complex process of buying or selling a business. They act as intermediaries between the buyer and the seller, working to ensure a smooth transaction that benefits both parties. Mergers and acquisitions (M&A) very often involve the sale of property, alongside the companies themselves.  This can be a significant factor in these deals, as property can be a major asset and can influence the overall value and complexity of the transaction.

Business brokers typically work with small and mid-sized businesses, but they can also work with larger companies. They have extensive knowledge of the business sale process, including valuation, marketing, and negotiations. A business broker’s responsibilities can include but not limited to:

1. Valuing the business
2. Coordinating due diligence
3. Creating a marketing strategy
4. Preparing marketing materials
5. Qualifying potential buyers
6. Facilitating negotiations
7. Closing the deal

One of the key roles in being a professional Business Broker is to be able to perform a business valuation of a business. There are many ways that a business can be sold, whether it is a direct sale, a merger, or an acquisition. A merger happens when two companies join to form one organisation while an acquisition is where one entity takes control of another entity. In a summary, different mergers can be classified as either a Horizontal merger whereby two firms in the same industry merge while Vertical mergers refers to a merger between a customer or supplier within the same ‘value chain’ of the sector, while the Conglomerate mergers refers to unrelated lines of business that decide to merge. There are many reasons why firms might merge or acquire a new business.

The reality is that acquisitions and sale of a businesses can include the following:

• Synergistic benefits such economies of scale in purchasing stock or products or services, economies of scale in the combination of production facilities and warehouses etc.
• Sharing of elite and scarce managerial skills which also may include the Founder of the business exiting the business as part of succession planning or legacy planning.
• Organisations may have excess liquidity that they want to use for better strategic purposes and sustainability of their entity.
• Diversification into different industries or products which improves the overall business e.g. Elon Musk has various different industries that he is actively a business owner but also has shares.
• Organisation is looking to consolidate their market dominance but this is not limited to just consolidation of costs so the organisation may also find that the Replacement costs e.g. Value of firm is below net assets then cheaper to buy the shares than the assets.

The Valuation Expertise of Business Brokers

Determining the value of a business is a complex task that requires a deep understanding of various factors, including financial analysis, industry standards, and market demand. This is where the expertise of a qualified business broker becomes invaluable.

Business brokers are skilled professionals who excel in business valuation, using their knowledge and experience to accurately evaluate the worth of a business. They have a thorough understanding of the intricacies of different industries and can assess a business’s strengths, weaknesses, and potential growth opportunities.

By considering factors such as historical financial performance, market conditions, and industry trends, business brokers are able to provide an objective and comprehensive assessment of a business’s value. This ensures that both the buyer and the seller have a realistic understanding of what the business is worth.

Moreover, business brokers ensure that the price set for the business is fair and attractive to potential buyers, while also aligned with the seller’s expectations. They have the negotiation skills to effectively communicate the value of the business to interested parties, highlighting its unique selling points and potential for future growth.

Here’s a breakdown of how property plays a role in M&A:

• Types of Property: The property involved can be anything from office buildings and factories to land holdings and retail spaces.  The type of property will affect the due diligence process and the overall value of the deal.

• Due Diligence: Real estate due diligence is a crucial aspect of Mergers & Acquisitions deals involving property. This involves a thorough investigation of the property’s title, zoning, environmental liabilities, and any other potential issues.

• Acquisition Structure: The way the M&A deal is structured can impact how the property is transferred.  Sometimes the property is included in the sale of the company itself, while other times it may be sold as a separate asset.

Finding a qualified business broker is crucial if you want to reduce the anxiety of holding all the ‘transactions in the air’ as a seller. Its critical to perform a lengthy due diligence of Business brokers as you must assess the relevance of the business broker by seeking referrals from trusted sources, conducting online research, and evaluating the broker’s experience, credentials, and industry-specific expertise.

A Professional Accountant has a strong foundation to become a business broker, but some additional steps are needed and the added specialisation into Business Advisory is the right way to be successful in the industry. Here’s how your accounting background can help and what you’ll need to transition:

Advantages of being an Accountant:

• Financial Analysis: Your accounting skills are a major asset. Business brokers heavily rely on financial analysis to value businesses, understand their profitability, and assess potential risks.
• Business Acumen: Your experience working with businesses gives you insight into their operations, financial health, and challenges.
• Client Communication: You’re likely comfortable presenting information, negotiating deals, and building relationships with clients – all crucial for a business broker.

Step 1: Education: While formal education is important and works to a professionals advantage some business brokers have a bachelor’s degree in business administration, finance, or a related field. This can enhance your understanding of

Step 2: Experience: Gain experience in the business brokerage field. This could involve:

• Interning with a business broker.
• Working for a mergers and acquisitions (M&A) firm.
• Taking on freelance business brokerage projects, business valuations, marketing, and negotiations.

Step 3: Training & Certification: Consider that South Africa has relevant legislation that governs certain sectors so one must be clear on the legislative and the compliance requirements to be a business broker per sector. Estate agents and business brokers are required to register with the Property Practitioners Regulatory Authority (PPRA) in South Africa. If you operate as an estate agent or perform estate agent functions, or if you are a business broker involved in property transactions, registration with the PPRA is mandatory. Compliance with these regulations ensures fair and transparent property transactions, benefiting both practitioners and consumers. Check for any regulatory requirements or licensing needed for business brokers in South Africa. There might be specific educational qualifications or registrations needed. Look into relevant industry associations in South Africa for guidance.

SAIPA has an awesome webinar that is scheduled for May to assist Members and the Public to get a better understanding of Business Valuations and Due Diligence

Business Valuations and Due Diligence

Date: 8 May 2024

Time: 14:00-16:00

Hours: 2

Register on www.mysaipa.co.za