Marketwatch august 22, 2007

Hospitality – do the numbers stack up?

As we have previously reported the number of hospitality businesses for sale (27% of all listings) is far in excess of the 3% of businesses that the industry represents.   There are approximately 30,000 businesses in the sector, and nearly 10% of them were on sale in the last quarter alone.  Fortunately for those looking to sell, a disproportionately large number of potential buyers are considering hospitality.   However the question remains, do the numbers justify hospitality's special place in the market?

 The high proportion of businesses for sale can be interpreted in a number of ways.   On the one hand it could be seen as a flooded or desperate market. However, long term participants in the market would point out that this level of businesses for sale is a normal state of affairs.   This in turn provides one of the key attractions to this market – it is liquid – possibly more liquid than any other industry for privately owned businesses.   This attracts buyers who think they can improve the business then sell it on at a higher price.   This in turn brings us to the next feature of this market.

 This industry segment has a high level of variance in the value of businesses of the same size – refer to the BizExchange Index for actual business valuations.   This provides an opportunity for good operators to take on low value businesses and convert them into high value businesses.   Further to this their participation in the market increases the level of turnover, which in turn increases the liquidity in the market.

 Of course at the same time there are dream buyers, those who buy a business for lifestyle reasons.   Some will succeed and others will fail.   The failures will provide business opportunities for those that specialise in revamping hospitality businesses, and so once again the liquidity in the market is reinforced.  Further to this is the unmeasurable impact of numerous high profile sports people and celebrities participating in the market.   Their success stories are widely promoted, their failures well hidden.   On average the value of businesses in this market has softened in the last year.   Within that average there are plenty of winners and losers.   If you want to own a hospitality business, there is money to be made if you are a good operator, and money to be lost if you are not.   The question is, do you understand enough about the business of hospitality to be a good operator?