Many business owners may worry their planned exit and retirement plans have been delayed by Covid-19. Whilst this may hold true for some businesses, investors and trade buyers are still making acquisitions in the current market. The table below compares the number of Australian M&A transactions by industry in the last 6 months during the COVID pandemic, to the previous corresponding 6-month period. While transaction volumes are down in some industries, its clear there is still plenty of M&A activity.

The Buy Side

We note below key investment themes from our clients with standing buy-side M&A advisory engagements. Investors are looking to acquire businesses with:

  • Large addressable markets;
  • History of industry outperformance;
  • Strong industry forecast growth rates (underpinned by structural and/ or cyclical industry headwinds);
  • Sustainable competitive advantage;
  • Good quality management;
  • Delivery of high margins; and
  • The ability to extract synergy through acquisition.

Strict adherence to the investment criteria above has proven successful throughout the COVID pandemic. Many businesses have thrived over this period of intense and ongoing uncertainty.

In the last 6 months we’ve seen both business acquisitions transacting on high multiples (those companies and industries that have outperformed) and vendors willing to reduce their expectations to meet the market.

The Sell Side

One of the key themes we’ve seen in this pandemic-driven recession, that’s likely true in all economic downturns, is the concept of ‘winners and losers’. Businesses in travel, hospitality and bricks & mortar retail have suffered significant demand driven revenue decline. M&A activity in these sectors has been limited and overwhelmingly distressed sales, resulting in low transaction multiples. The ‘winners’ are those businesses in industries that have directly benefit. Examples can be found in online retail, mining services and technology, where company earnings have grown, driving higher transaction values.

 

Thinking selling a business?

 Selling a business is a significant life event for many business owners with numerous planning requirements to consider. The timing of when to sell is often vendor specific. And in the lead up to committing to sale it’s important for vendors to understand valuation, tax implications, the sale process and timetable expectations.