Macquarie Research shows succession planning emerging issue for strata management industry

13 October 2004

Australia is headed for a complete change in the strata management landscape with nearly 50 percent of principals planning to sell all or part of their businesses in the next three to five years, research commissioned by Macquarie Bank (“Macquarie”) has found.

William Buck Chartered Accountants conducted the research, which was endorsed by the National Community Titles Institute. It indicates the industry will consolidate as smaller operators retire and sell their businesses to larger operators.

“The research suggests it will be a buyers’ market in the foreseeable future as increasing numbers of principals in the 55-64 year age bracket retire and put their businesses up for sale,” Macquarie Banking Division Executive Director, Greg Loveday, says.

“This situation will provide excellent buying opportunities for astute strata managers keen to establish their own businesses and/or fast track business growth via acquisition.”

“Conversely, increased sellers on the market means it is more important than ever for business owners to develop smart succession plans so they can achieve the optimum price for their years of sweat and toil. This is even more important if their business is their ‘nest egg’ for retirement."

The importance of this point is highlighted by the Macquarie research, which shows 73 percent of strata managers believe succession planning is important but only 24 percent have a succession plan.

Strata managers assist the committees of owners’ corporations to protect the investment that owners have in their building. Tasks they frequently undertake include record keeping, arranging insurance, overseeing repairs and maintenance, levy collection, drafting budgets and chairing AGMs.

Other key findings of the Strata Management Benchmarking Survey include:

• staff resourcing and the regulatory environment are the biggest impediments to business growth,
• nearly half of the participants (40 percent) expect the industry will grow by more than 25 percent over the next three years, and
• 35 percent of participants intend to acquire another strata scheme within the next five years.

“As with many professional service industries that we have as clients, staffing shortages are emerging as a major concern for the strata management profession,” Mr Loveday said. “Staffing shortages will continue to escalate if the industry achieves the strong growth (25 percent over three years) predicted in the survey.”

Mr Loveday said while the industry was spending considerable resources training and developing staff, another strategy business owners can pursue to address this issue is to acquire another business and, in effect, ‘buy’ additional quality staff. “With increasing numbers of sellers on the market, business owners should have ample opportunity to execute this strategy.”

Mr Loveday said the research findings that regulation is a major impediment to business growth was supported by client feedback to Macquarie’s Banking strata specialists.

“Our clients are increasingly impacted by changing State Government legislative reforms, particularly reforms relating to the management of bodies corporate as well as the Financial Services Reform Act.”

“Despite this, our clients are confident the industry is set for a period of strong growth as they ride the tail-end of the construction boom. Also the complexity and increased regulation of managing bodies corporate means many investors are seeking professional managers to do the job.”

Mr Loveday said based on these research findings, Macquarie was looking to expand its current strata industry focus to include creation of a specialist team to assist clients develop succession plans.

Macquarie Bank is the major banker to the strata management industry having provided specialised services to the sector for over 15 years. These services include business lending; deposit facilities; DEFT Payment Systems (a strata levy collection facility); and business broking services.

For further information, please contact:

Suzanne Houweling
Communications Manager
Macquarie Banking Division
Tel: (612) 8232 7029
Mobile: 0410 499 034
Email: suzanne.houweling@macquarie.com