Universal considerations and risks in M&A and capital raising

Whether you're buying a business, selling a business, or raising capital in Australia, each pathway comes with its own technical processes and risks. Our comprehensive guide to mergers & acquisitions and capital raising highlights the critical steps, risks, and tax considerations you need to know.

The guide covers: 

• The strategic importance of M&A and capital raising
• Selling a business: from preparation to pay day
• Buying a business: the smart buyers' playbook
• Capital raising: fuel for the next stage of growth
• Tax considerations: how tax can make or break a deal
• Role of advisers: expertise that turns deals into wins 

This article focuses on some of the universal considerations in M&A and capital raising, and how they can impact the outcome. 

Selling a business 

• Confidentiality breaches: leaks can unsettle employees, customers, or suppliers
• Deal collapse: buyers may withdraw if financing fails or due diligence reveals issues
• Post-sale claims: buyers may pursue sellers for misrepresentation or warranty breaches
• Transition risks: loss of key clients o r staff after settlement can erode business value

Impact: reduced sale price, reputational harm, or prolonged legal disputes

Buying a business

• Overestimating synergies: anticipated cost savings or revenue growth may not materialise
• Hidden liabilities: unrecorded debts, pending litigation, or tax exposures can surface post-deal
• Cultural clashes: misalignment between buyer and target staff reduces integration success
• Integration risks: poor planning undermines expected returns and erodes acquired goodwill

Impact: overpayment, reduced return on investment, and operational disruption

Raising capital 

• Loss of control: investors gain board seats and veto powers over key decisions
• Restrictive rights: anti-dilution protections, liquidation preferences, or reserved matters may disadvantage founders
• Exit misalignment: investor timelines (5–7 years) may conflict with founder vision
• Governance burden: increased reporting and compliance obligations

Impact: dilution of founder control, reduced flexibility, and potential shareholder disputes

Taxation 

• Tax structuring: structuring is key to optimising post-tax outcomes, whilst having regard to your commercial drivers and simplification of future tax compliance management
• Goods and services tax (GST): incorrect structuring (not as a going concern) can trigger GST, creating cash flow strain
• Stamp duty: varies by state; can be significant on goodwill, Intellectual Property (IP), and property
• Inherited liabilities: buyer's risk taking on historic tax obligations in share deals

Impact: lower net proceeds for sellers, higher acquisition costs for buyers, and unexpected tax risks

Importance of fair valuation

Another crucial element in M&A and capital raising is valuation, determining the worth of a company so that the price paid or equity sold is fair. Valuation methods typically include:

1. Discounted cash flow (DCF): estimating the present value of future cash flows of the business. This intrinsic approach requires financial projections and a suitable discount rate (often derived from the Capital Asset Pricing Model).
2. Comparable company trading multiples: comparing valuation metrics (like P/E or EV/EBITDA ratios) of similar publicly traded companies. These trading multiples indicate how the market values similar firms and provide a benchmark range.
3. Comparable transaction multiples: looking at pricing multiples from recent acquisitions of similar companies. These transaction multiples reflect actual prices paid in M&A deals and often include a control premium. They are based on closed deals (historical data) in the same industry or of similar size.

In practice, advisers often use all three methods to triangulate a valuation. For example, multiples serve as a market-based check on a discounted cash flow (DCF) valuation, showing a range of possible deal prices and ensuring the DCF result is plausible. 

Ultimately, a company is worth whatever someone is willing to pay, so the market-driven approach (especially through a competitive sale process) determines the final price. However, starting with a sound valuation is critical. Pricing too high can deter investors and buyers, and under-pricing leaves money on the table.

A successful business sale or acquisition starts with the right preparation. Advisers are essential in M&A and capital raising because they help maximise value by positioning businesses fairly and competitively. Our corporate finance team helps identify and mitigate risks by conducting thorough due diligence and structuring transactions effectively. Our tax team work with legal experts to ensure compliance and optimise after-tax outcomes for all parties. Advisers also negotiate favourable terms while drafting robust documentation to protect stakeholders. Finally, their presence adds strategic guidance, professionalism, and credibility, ensuring a smoother and successful transaction.

If you’re considering a business sale, acquisition, or capital raise, start with the right advice. At PKF Perth, our corporate finance and tax team work together to ensure your transaction is positioned for maximum value and minimal risk.