The CEO Interview
Selling and buying of businesses is gaining traction in Nigeria
Compex Africa is an online marketplace that brings together owners of businesses who for one reason or the other are willing to sell their enterprise and buyers who are looking for such businesses. Ifeoma Uddoh, chief operating officer of Compex Africa spoke to FRANK ELEANYA on what businesses need to do to get the attention of buyers and which sectors of the Nigerian economy have the highest listing on its platform.
How did Compex Africa come about its idea?
We figured that a number of business owners in Nigeria actually at some point get tired of their business; they retire or may be in debt; different reasons. What we find is that people allow these businesses to die a natural death. What this means is that we do not have long term businesses. Think about the United States and you think about businesses that are said to be over a hundred years old. So we figured that the best way to do that is to create a market place where if you are tired of the business and you want to leave your business, if you want to retire and want to do something else, you can actually sell that business. And what better way to do that than with technology – where on a laptop, people that are interested can find out who wants to sell or who wants to buy. That is what Compex Africa does.
What makes you think that buying and selling businesses will be profitable in Nigeria considering most are one man businesses?
First thing is; buying and selling a business, is it happening in Nigeria? Yes it is and at different levels. So that is always going to be there. If you want to run a business you have options; you start up a business from scratch, which means you are a startup. A startup means testing an idea, validating an idea to make sure that it is a business and it grows. An already established business means that it has been tested and maybe for some reason whether management, financial, retirement or anything, the owner might want to leave it. For me, from a business point of view, if I have cash, which one of them is less risky? Remember we are in a technology age where we are talking about buying a business and potentially buying customers and potentially buying all the different intangible assets of the company that will cost money at times to get.
So yes, people buy business; people who understand these things and understand the way the market works. It is the same way on the stock market, people buy stocks. There was a time Nigeria had a very stable and rich stock market.
When you buy stocks you are buying a business, although a part of the business. But now we are talking about buying the whole business. Some people also buy businesses for expansion.
If you have a business that is functioning here and you want to move it to the northern or the southern parts of Nigeria, and you do not know the terrain very well, it is better for you to go there and buy a business. Go there look at how the business is functioning, the operations, make sure they have what you are looking for and buy the business. That is faster for you. That will make you scale faster. It will save you the hurdle of going there and trying to look for staff and you will also gain the experience and knowledge of those people which is very valuable.
Which category of people fall among your target market?
When we started Compex Africa, the driver for us was, as Angel Investors – some of our board members are Angel Investors – is exit. And we figured that in tech if you are thinking of investing, you are talking about exit because dividends for some reason in Nigeria is not very rewarding. It still takes a while. Nigeria is a very peculiar business environment.
So we ask, what can trigger exit and making sure that exit is in the mind of every SME in Nigeria? That was what we were thinking; can we get that thought into the mind of every business man in Nigeria?
We target people who are about to retire, people who are tired of running their business, and they want to do something else. Look at it this way, everybody is going into tech, what if you own something and it is dying and you can sell it to your competitor? We were also thinking of people that want to come into this market and they have enough capacity to actually scale up a micro-business than to start a business.
That was the mindset. How can we convert more micro-businesses which Nigeria has in abundance, to have them synergize and be bigger and make more money than they are currently making.
Can every business enterprise be put on sale?
I think it should be “Can every properly run business…?”
So it has to be ‘properly’ run?
Yes. Selling a business, first of all depends on the buyer. Some people buy businesses for ulterior motives, like for profit. Some buy for competition, some buy for expansion and some buy businesses just to kill it so it does not compete with the brand. So far there is a buyer that has a motive for that business. If you want to sell your business there are things you must have…
You must be registered. You should have the books to look at. You should have regulatory requirements. You should also have operating procedures. Nigerian businesses in a way are typically run and controlled by one man.
That is why most of our businesses do not scale beyond the point that they should. If you are building a business for sale, you should have that at the back of your mind from the onset.
You know that it is a liability to you when you want to sell and you know that any buyer that comes in and spots that your business cannot function without you is going to price you something below market value. So you start putting that process in place.
Statistics and research have shown that people that actually run their business like they want to sell actually have better control. This is because the business functions as an entity separate from the business owner and most times it improves efficiency and profitability.
How do you deal with property agents in the market?
When we started the first thing we started trying was to ask “What are the low hanging fruits?” How do people currently sell their business? We researched and we got to know that most people when they want to sell their business they will go to a lawyer or a property agent and tell them to help dispose the property.
We started talking to them and we helped them see that what the property agents cares about is what their commission will be after selling the property. Sometimes when you talk to owners they will say “Oh the business is still functioning, but me I don’t care about that as long as they sell the property?”
You see that people still do not recognize and do not value their intangible assets. We have a bottle water company that wants to sell and the agent is talking about just the building, the machinery etc which does not capture the five years that the man has put in to run the business.
Let’s take for instance, this business gets sold as a property, it means that is another loss in terms of intangible assets. The way we have tried to manage these agents is to say that “You are interested in a property, and we are interested in the business, is there a middle ground?”
Sometimes there is none because all they are after is making money and they see you as a threat. They just do not bother talking to you. But there are rare times, some of them are like “Oh if this business sells, I will still get something.” The end goal for us is to say that “If you ever want to sell a business, you do not need to talk to an agent. All you need to talk to is a lawyer, get your books right and list it on the site by yourself.” Just the same way you do on your Facebook page and wait for interested people to contact you and you can start that discussion.
What you are saying is that it is possible to make more money from selling different parts of business or do you have to sell it as a whole?
Selling the assets of the company is part of business sale. Some people buy businesses and they are like, just to make sure that everything is alright, they do not want the name.
But why they are buying the assets of the business is to make sure that if anybody comes tomorrow and say X is owning me money then I am not X. So buying company assets is also a means of buying a business. What buying a business does for you when you buy it through our experts and how they advise you is that you can actually gain some insight which will be useful for you.
Can you share some data you have from observing clients behaviours?
We were running the data for ten months and we found out that the top three sectors where people were listing their businesses for sale was manufacturing, oil and gas and hospitality.
If you look at the recession that hit Nigeria last year, those are the three sectors that seem to have been hit harder than others. In the hospitality sector, the occupancy rate dropped a lot, and diesel prices also went up.
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