Mark Ostryn, Neethika Sajith & Divesh Bidhuri – strategictransactions.com.au
Compared to the equivalent period of 2016, Australian MidMarket M&A has shown a fair degree of resilience. This is against a backdrop of baby-boomer-exit-doom and Trump induced global recession fears.
VOLUME
There was an 8% increase in the total volume of midmarket ($2-200m) business sales, resulting in 108 successful transactions in calendar quarter one 2017.
Of those, 44% involved a private to private transaction. Compared to 2016, there was a slight increase in the volume of private businesses being acquired by listed companies.
VALUE
The average multiple of earnings (i.e. profit) that a mid-sized business sells for has not shifted significantly in the past year. The rules remain constant.
- the larger the business the higher the multiple
- averages between specific industries remain constant – manufacturing business will sell for more than twice the multiple of a food service business.
- Monopolies, duopolies and oligopolies tend to sell for higher multiples.
- Scalable companies in growing industries sell for higher multiples
LOCATION
Overall, 73% of mid-sized businesses sold by Australians are acquired by Australians. Next up is USA, HK and UK. In spite of the increasing technology surrounding international deal platform, this split is identical to 2016.
RATIONALE
So what are acquirers looking for? Of all the announced justifications for an acquisition: product expansion, geographic expansion and economies of scale dominate.
- PRODUCT EXPANSION (32%). Acquirers want access to the sellers’ current products or services and the ability to sell them into their existing, and probably much larger, client base. They want access to all of the developing technologies and products at the sellers’ disposal. It’s much less risky than them having to drive their own R&D or new product pipeline.
- GEOGRAPHIC EXPANSION (31%). These often will be foreign companies seeking a low risk footprint into a healthy, developed economy like Australia. An economy that will consume the existing products or services that the buyer produces, while the products produced by the seller can be sold in other markets.
- ECONOMIES OF SCALE (18%) – Here, acquirers may be seeking to consolidate a fragmented industry by acquiring one or multiple businesses to gain economies of scale, boost productivity, utilise improved information technology resources and increase profits.
MORE INFORMATION
This aggregate information can be broken down, on request, by industry. Please contact 1 300 862 511 for more information.
Strategic Transactions, Value Discovery service can provide a detailed value simulation for your business by integrating the performance characteristics, intrinsic value and precedent transactions into a value simulation. Call us for more details.
