It has been another strong quarter for M&A activity across a number of sectors in Australia. We continue to see activity in the technology, financial services/insurance, food and beverage, and ever-growing ‘wellness’ sectors. Vendors are commanding strong exit multiples, driven by strong brands, loyal customers, strategic imperatives and the prevailing market conditions, which have seen Australian equity markets reach decade-highs.
While trading multiples continue to trend upward, global uncertainty and local household debt levels continue to play on the minds of investors and in particular whether or when we will reach ‘the top’. Increasing numbers of vendors are running deals on their terms through commissioning vendor due diligence reports, pre-arranging debt-staples and holding bidders accountable to tight timetables. Our advice to potential vendors remains the same: act quickly and become ‘deal ready’. For buyers offering large multiples, we urge rigorous pressure testing of the investment thesis versus realities uncovered in due diligence, how this effects integration planning and how any anticipated synergies may be captured.
Recent deals & activity
Acquisition due diligence, SPA advice and integration planning for Energy Australia’s acquisition of Ecogen Energy.
Acquisition due diligence and SPA advice for Yorkway Partners’ investment in Insurance House Group.
Acquisition due diligence and SPA advice for Aon Australia’s purchase of Affinity Insurance Brokers.
Vendor due diligence and other sell side assistance for WhistleOut’s sale to Sykes Enterprises (NASDAQ:SYKE).
Acquisition due diligence for TeamInvest Private’s investment in Multimedia Technology, a leading wholesaler of IT, AV & related products.
Key takeaways this quarter
1. Integration / separation – fail to plan, plan to fail
We continue to support our clients on deals both well before, and well after they close. Buyers getting the best results are planning well in advance on how to integrate their new business and realise the synergies that they modelled. Core to our integration methodology is to make the integration strategy part of the bid process, with a focus on priority initiatives driving value and critical Day 1 readiness requirements, so there are no surprises when you close.
2. Closing mechanisms – ‘Locked Box’
As more evidence of a seller’s market, we continue to see an increased use of the Locked Box closing mechanism in transactions across a number of sectors. Historically this method has been popular in Europe and the trend seems to have transferred to our market as vendors take increased control of their processes. While the Locked Box can help provide certainty to sellers, any gaps in due diligence or legal drafting of the mechanism represent a significant risk to buyers. However there are ways for buyers to get the protection they need. Please reach out if you would like to discuss with one of our Experts.
Sam McCombe who was promoted to Director 1 July 2018. Sam brings over 11 years of experience to the team and provides end-to-end advice and support to clients from before a deal starts, through to completion, integration and beyond.
National R U OK? Day is on 13 September 2018 and McGrathNicol offices will be hosting events to inspire that simple but important question “Are you ok?”. Please reach out if you would like be involved.