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Some sectors are dividing into haves and have-nots as inflationary pressures take their toll, says HLB Mann Judd specialist.
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Cash-rich building firms ‘ready to pounce’ on struggling peers
23 September 2022
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Vulnerable sectors such as construction face a shakeout and consolidation with cash-rich operators “ready to pounce” on their weaker peers, says a specialist at HLB Mann Judd.
Cash flow pressures were dividing the building, cleaning services and rental industries into haves and have-nots, the firm’s Sydney director of business advisory services, Andrew Ash, said, and strong players had more spare cash than usual.
“I've seen a lot of businesses that are well established and have good backing behind them, a lot of cash,” he said.
“Some of these businesses are actually on the front foot with all of this. They're seeing headwinds, they’re seeing challenges, but at the same time they're thinking, what are the opportunities here?”
“In construction, cleaning services and hire I definitely see opportunities.”
In construction, for example, weak-but-attractive smaller firms were likely to get snapped up, changing the face of some operations entirely.
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“It’s quite a diverse industry. There’s property developers and there's contractors – those businesses that supply to property developers.
“So you might see businesses start to move from being a contractor into the development stage, for example.
“The ones that are going to go after this type of strategy are obviously going to be the ones who are well placed to do so. But I still think it's going to be a thing.”
“Another one is the cleaning industry. You have cleaning services businesses and all the suppliers that supply the cleaning services industry. So there are people that manufacture the brooms, the mops, the ride-on cleaners, the vacuums, all of that.
“I've definitely had some conversations around moving in both directions. So moving from a cleaning services business and starting to diversify into actually supplying products.”
He said this sort of integration made sense as prices were rising.
“At every link across the supply chain, people are taking margin. So by moving across the supply chain, you can take that margin or save on that margin. It can be quite valuable.”
Mr Ash was optimistic for businesses looking for a way to expand but sounded a note of caution.
“The impact is going to be on the individual business. So you'll see some businesses actually thrive and the families associated with those businesses do really well.
“But in the same token, they also need to be careful, because, for example, the cleaning services business is very different from a business that imports cleaning chemicals into the country – a very different business and very different cashflow demand. So they need to they need to be careful at the same time.”
He said businesses looking for acquisition targets should do thorough research and get specialist advice. For those without the capital to look for strategic opportunities, it would be a struggle.
“The ones that aren't talking about it are in a much worse position. It's really batten down the hatches and let's make it through this.”
Suppliers were increasing prices and staff wanted more money.
“So all their costs are going up. So if they don't actually take action in some area, or if they're just happy to take a cut on their margin, they'll actually go backwards.”
At the same time thanks to all the uncertainty, people were watching their spending more closely.
“Some of them I’m meeting on a weekly basis just go through cash flow.”
“I'm sitting down with a lot of business owners and going through what costs are going up. Let's map that out. What's the timing of these costs? And where do we stand if we did nothing?
“So then we go, what do we do to try and rectify this? So we need to look at pricing strategies, for example. Everyone's increasing prices and as a result, we also need to otherwise you're going to go backwards.”
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