What is happening in mergers and acquisitions?
The level of corporate merger and acquisition activity has increased in recent periods to levels close to that seen prior to that prior to the global financial crisis and the more recent mining boom (FY2011) as presented in the figure below.
The increased activity is a function of:
- Acquisitions being cost effective way to drive growth for larger businesses.
- The target businesses providing access to new markets or customers.
- The acquirers' ability to generate managerial administrative efficiencies/economies of scale with the increased size of the business.
In the small to medium enterprise (SME) and private company area of the market, we are seeing the following market trends:
- Increasing numbers owners approaching retirement (including owners that have deferred sales from the GFC) providing opportunities for buyers.
- Limited instances of management buy-outs, with a value gap between vendor expectations and management’s ability to raise capital.
- Longer retention periods for owners/key staff in order to ensure there is value in the transactions
- Deferred Consideration and earn-outs being used to de- risk the transaction for purchasers.
In order to achieve the optimal outcome, it is advisable for the business owner to commence planning for the exit a number years before the proposed retirement date. This timeframe enables the search for the suitable acquirer and allows time for the handover.
Early preparation has the added benefit of providing owners with time to address any shortcomings or risks in the business. These changes, including a willingness to continue participate to in the business post sale can add significant value in determining the final proceeds.
If you are considering the sale of your business, please contact our Corporate Finance team for a confidential discussion.
This article is part 1 of a 7 part series.