The impact of the “Silver Tsunami” on SME valuations.

The impending retirement of the baby boomer generation, often referred to as the "Silver Tsunami," is set to have a profound impact on the world of business. Let’s explore how this demographic shift intersects with the fundamental drivers of business value and offer insights on navigating the changing landscape.

Key Drivers of Business Value

Before delving into the specifics of the "Silver Tsunami," it's wise to understand the foundational elements that underpin business valuations. Income generation, demand and supply dynamics, and associated risks are the pillars upon which the value of businesses is assessed, these are summarised briefly below;

  • Income derived from the asset, ie. income trends, cycles, recurring, costs incurred earning the income;
  • Demand for the asset class and Supply of the asset class in the market;
  • and Risk attached to the continuance of the income being derived from the asset ie. Contracted, cashflow, customer base, surety of supply, competitors etc.

So when there is movement or significant changes in these drivers, there is an expectation that the value of the asset class will be impacted one way or another.

Boomer Business Exodus

The current and impending retirement of baby boomers, who hold a significant share of SME ownership, has drawn attention to the increasing number of businesses hitting the market. This surge in business sales is expected to impact business values, with an expectation of an oversupply of businesses for sale occurring.

Over the past 12 to 24 months, I've observed a notable increase in business valuations driven by owners selling their businesses upon retirement. This is a reversal from what occurred from 2020 - 2021, where many owners who were considering retirement took a wait and see approach as COVID 19 impacted the economy. The market is seeing many of these owners that had deferred selling, now becoming sellers.

To date, my observation from review of sales data, is that downward pressure on values has not yet occurred, indicating that oversupply of businesses for sale has not yet eventuated. Stabilisation of values in some of the market segments that were experiencing high growth in value has occurred, however a reduction in sale values is not evident. Other prevailing economic factors, such as increased interest rates and reduced consumer confidence, would also be contributing factors of this.

Benefits of Acquiring Established Businesses

For potential purchasers, the "Silver Tsunami" presents a unique opportunity. Acquiring a long-established business offers a range of benefits, including

  • an established branding, customer and supply base;
  • experienced workforce, a high value asset in a low unemployment environment;
  • cashflow and income record, providing a proven base from which to obtain funding and plan for future expansion/growth;
  • the opportunity to obtain advice, mentorship and retention period of the retiring owner, with little risk the seller will recommence in business as a competitor at a future date.

In an ever-changing economic landscape, the factors associated with purchasing an established enterprise not only reduce the risk associated with purchasing the asset but also offer a stable foundation for growth and success, counterbalance the impact of increased market supply resulting from owner retirements.

While we cannot predict what the future holds and the future impact on SME business values as more baby boomers retire and sell their businesses, recent transactions suggest that values have not been substantially impacted from the “Silver Tsunami” alone.

Teri Roberts 
Director Business Valuations
— Brisbane Property Valuers
  |  LinkedIn
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