Australian companies set to capitalise on mergers and acquisitions boom
The Australian economy is on the up
It’s official: Australian companies are on the lookout for acquisitions and mergers. The Biannual Australasia Capital Confidence Barometer, just published by EY Oceania Transaction Advisory Services shows that against a backdrop of rising confidence in the local economy, the number of companies seeking acquisition has climbed from just over 33% six months ago to 66% today.
Good news for business expansion
The EY report is always worth paying attention to as it’s based on a survey of 157 senior executives in Australia and New Zealand and offers a useful insight into economic trends. The current report is particularly interesting because of the significant upward shift in respondents’ attitudes towards expansion: almost three-quarters are expecting local and global mergers and acquisitions (M&A) activity to improve and are actively looking for acquisitions which are already at a four-year high.
Even more M&A growth is expected over the next twelve months, assuming a stable global economic platform, with the focus firmly on using M&A to drive performance gains. And, with lots of multi-billion deals being done at the top, middle-market deals are likely to be hotly contested.
A transformational approach to M&A
One of the most interesting points to note is that rather than looking for organic growth from acquisitions that ‘bolt-on’ to existing businesses, execs are instead focussing on M&As that enable them to gain market share and a competitive advantage – in other words, those which offer opportunities to transform existing business models.
New deals are expected to deliver big advances, enabling companies to move into new product and services areas, to make inroads into fresh geographical territories or to access innovative technologies. Obviously, companies looking to acquire are also looking to manage costs more effectively and to grow their margins wherever they can.
Buyers demonstrating more disciplined thinking
With all this M&A velocity, gearing levels are expected to increase but as current debt levels are modest (72% of companies have lower than 25% debt-to-capital ratios), it shouldn’t be a barrier to growth. Another fascinating insight from the report, though, shows that alternative funding is likely to play a bigger part in negotiations. In fact, more than half the respondents were looking to secure alternative funding from credit providers such as hedge and pension funds.
What’s crystal clear is that companies are employing ‘a more strategic and disciplined approach to deals and more rigorous transaction due diligence.’ Which means that any seller keen to take advantage of the M&A gold rush needs to have all their ducks in a row before courting a suitor.
Graeme Browning, EY Managing Partner sums it up: ‘As the market heats up, anyone sitting on the sidelines will be left behind.
Are you prepared to sell?
If you are thinking about capitalising on the burgeoning interest in M&A, you’ll need to take stock of your business. Are your financial statements and management accounts in apple-pie order? Is all your legal documentation (shareholders certificates etc) in place? Are employee and customer contracts up to date? We’ve frequently approached businesses on behalf of buyers, only for the deal to dry up because of inadequate paperwork.
How reliant is your business on its owner? We know from experience that more buyers will be attracted to businesses that are managed by a highly motivated, properly incentivised team rather than those that are owner-dominated.
If you don’t understand the strategic value of your business, you can’t expect others to value it, either. By taking a logical approach to preparing your business for sale, you’ll maximise its value and be in the best position to make the most of the opportunities that arise – which has to put you ahead of the game.
To find out more about maximising the value of your business, call Succession Plus to arrange a confidential discussion.