The FY21 M&A Deals: Year in Review Report highlighted an increased number of transactions in FY21 compared to FY20 despite the COVID disruption to businesses worldwide.
As a firm, HLB Mann Judd completed a number of transactions with offshore purchasers, who were not able to travel to Australia to meet management face-to-face. This demonstrates how global transactions progress despite the obvious restrictions imposed on organisations.
The first quarter of FY22 has seen a record number of transactions commence across a variety of industries.
So, what’s causing the surge in demand? There are a few principal reasons for this, namely:
- Baby Boomer-led businesses: The baby boomer generation, who are incredibly entrepreneurial, are reaching retirement age. This should be giving rise to intergenerational change. However the children are increasingly less interested in taking on the family business and would rather their parents sell the business and leave them the money.
- Stock markets recovery: The bounce back in global stock markets and, by association, superannuation funds, over the last 12 months has brought retirement aspirations forward, allowing business owners to plot their financial future with more confidence and certainty. In addition, the market recovery results higher price/earnings ratios for listed businesses allowing them to offer higher acquisition prices and still achieve a multiples arbitrage for shareholders.
- Debt is cheap: While many businesses have been hit hard by the pandemic, many have prospered and benefitted from government incentives and reduced operating business costs. In addition, record low interest rates has resulted in cheap borrowing costs, allowing organisations to dramatically lower their cost of capital. Businesses with excess capital, or access to cheap debt have realised there is a golden opportunity to dramatically increase the value of their business through targeted acquisitions to take on new geographies, products, services or technology.
The Australian private equity and venture capital sector is currently sitting on $13 billion of unspent funding allocated for acquisitions which needs to be spent.
There are currently many hot sectors for transactions, with most industries going through a redefinition of market dominance. Health and freight and logistics have been heavily disrupted, the market transition to electric vehicles is accelerating, and businesses associated with traditional vehicles are redefining business models to be future-proof.
There has never been a better time to consider exiting a business or investing in your business, as buyers and sellers are aligning valuation expectations and funds are readily available to facilitate the transaction.
This article was published in the 2021-22 Summer Issue of Financial Times.