Mark Lavery, Associate Director, Retail & Leisure at UK company Christie & Co, gives an overview on asking prices, what they are, and how they are calculated.
What is an asking price?
From a seller’s point of view, the asking price reflects the level of financial consideration that an owner may be prepared to sell his/her business for, and is used to guide prospective buyers towards a level of price. As you will read later, this can be calculated based on many different factors and variables concerning the business in question.
Why do we have asking prices, and what does it mean to a vendor and a buyer?
Typically, an asking price for a marina is created by an appraisal process based on numerous factors relating to the business, including the likes of tenure, length of ownership, investment, financial performance and quality of earnings. Using a specialist leisure agent to provide comparable evidence of other marina sales to use as a benchmark will give potential vendors an understanding of the current market and help inform them of the level of asking price that would be appropriate for their business. The vendor can then use this information to review his/her options about coming to market and whether any pre-disposal actions are required before taking the decision to sell.
The asking price for a business gives potential buyers a guide as to the vendor’s expectations. The level of price will determine whether this is something they can afford to buy, or not. In our experience it is generally more efficient to quote an asking price rather than listing a marina asset as ‘Offers Invited’ as it demonstrates a definitive price point from the outset. Of course, there will be times when an ‘Offers Invited’ approach will be most appropriate – for instance, when a business may not have been offered for sale for many years, or if the type of business could appeal to several different buyer groups, or incorporate a number of development opportunities which different buyer groups may price differently depending on their individual investment criteria. Whichever the case, it is therefore good practice to get the advice of a reputable agent who knows their market.
How is an asking price calculated?
If a marina operator decides to sell an asset, it is critical that an appropriate price is agreed at the outset. Ultimately, the vendors will want to ensure they achieve the best possible price for their business and therefore an asking price that can drive interest and, by definition, competitive tension, should be the objective of a quality selling agent.
So, what is the best way to ensure you obtain the correct pricing advice for your asset? The answer undoubtedly would be to employ the services of a commercially aware sales agent - someone who has a track record of successful marina and marina-based business sales. As the marina world is quite a niche sector within the wider leisure market, with its unique traits and operating processes, an agent with knowledge and experience in this sector is vital going forward if a vendor is considering going to market.
Pricing advice is dependent on many factors as we mention above, with the financial performance over the last three years most relevant. The location and size of the operation, which will include the number of berths available, along with the scope of the hard standing facilities available, will also be factored into the pricing. Additionally, the importance of a robust on-site maintenance programme cannot be overlooked. A well-maintained marina is critical to any sale being agreed, such is the nature of the business, being located outdoors and often bearing the brunt of unpredictable weather. Does the business have additional income streams from third-party occupiers and are there deliverable opportunities to develop and grow the business, either as stands or through obtaining any necessary planning permissions? In conclusion, there are a lot of factors to consider within your business before going to market.
The methodology
Fortunately, in the marina sector, there is an agreed methodology as to how to arrive at an asking price. Marinas are more often than not appraised using a profits method. This method uses an appropriate multiplier number attached to the adjusted fair maintainable trading profit (FMT) of the business to demonstrate pricing parameters. Interrogating the accounts for the business, an EBITDA value (earnings before interest, taxes, depreciation and amortisation) is calculated. A multiple is then applied to this EBITDA value to show where the pricing range for a business may realistically sit. This multiple is calculated taking into account all the variables discussed above, and as such, the range of multiples attached to marina values can differ considerably, which is evident when you look at the various sizes of marinas across the UK, along with their different offerings and locations.
Other factors to consider
All marinas are inevitably different, and additional factors must be considered when preparing for sale. Key indicators for potential buyers would include the following:
- Third-party leases/concessions on site. It’s key to consider the length of lease agreements, what the operations are, and whether they are complementary to the overall marina operation, e.g. riggers, brokerage or chandlery services
- Whether there is a dredging seabed maintenance schedule in place to allow for optimum chart datum, which is critical to some marina operations
- How long the marina has been under its current ownership and the reason for the sale
- Whether there is any accommodation on site, which may be important for remotely placed marinas
- Whether there is potential to grow the business. For example, is there potential for additional berthing or hard standing? How much will the investment cost versus the return?
- Has there been planning consent on site that may be commercially viable and attractive to a new incoming owner?
You will see that one size does not fit all, and each marina will be different in some way from its nearest neighbour. It may be owned on a ground lease basis or as a freehold. It may be a small inland marina or a substantial coastal operation in a key location. Either way, it is imperative to employ the skills of an experienced agent to help you navigate through the appraisal process and provide the best pricing advice for you to come to market with, and ultimately aid you during the conveyancing period towards a sale completion, whether that be as an asset sale or a share sale.
Mark can be contacted at mark.lavery@christie.com
This article was originally published in issue 149 of Marina World magazine. Click here to read the online version.
