More and more of our clients’ businesses are being acquired by those at the top of the business acquisition food chain, or those aspiring (and acquiring) to be there.
Major ASX and international listed companies have traditionally set their threshold transaction sizes fairly high. They have, in the past, tended to be ‘fed’ by private equity (PE) firms performing intermediate roll-ups over a 3-5 year timeframe.
With increasing numbers of businesses coming onto the market, those ‘top of the acquisition food chain’ players have been coming forward in increasing numbers to snap up the offerings direct, instead of waiting for them to be packaged up by intermediaries.
Specifically, we have seen a trend whereby local and international listed companies are stepping in with their dedicated in-house M&A teams, moving more quickly and efficiently than many Institutional PE firms’ outsourcing compliance protocols permit.
It’s not yet an out and out feeding frenzy, but it can be if the target is sweet enough.
The target businesses may have enterprise values (EVs) starting from say $2M, up through $100M and well beyond. Of course they will, and do, acquire much larger businesses.
Institutional PE firms’ due diligence processes are usually slow, onerous and expensive. These are often a deterrent to many on the ‘sell side’.
By comparison, local and international listed companies, with their due diligence (DD) reviews often done internally, can move very quickly and efficiently. Their DD can be targeted and quite surgical at times.
Another interesting comparison is the types of businesses they are buying. Local private equity firms tend to follow each other into particular industries. RTOs (registered training organisations) are currently their hot spot of interest. Virtually every RTO that comes onto the market is snapped up by a private equity investor doing a roll-up. We’ve received as many as 120 responses on individual RTOs taken to market by us or our affiliate MNA Direct which performs direct marketing on behalf of other advisory firms. Sometimes more than 30 responses in the first hour! By comparison, local and international listed companies are interested in a much broader range of industries, ie the other 20,000 types of available businesses.
Even more importantly, they can and will pay more where there is a great strategic fit, pocketing all of the PE (price earning) multiple arbitrage for their own shareholders.
In particular, overseas listed companies seem to be paying higher multiples, perhaps a reflection of the relative strength of their economy and ours. Aus/NZ businesses seem like bargains to many of them.
All the more reason for the small fish to want to be caught!
This takes us well away from the bottom feeding peddlers of doom and gloom about the growing over-supply, trying to push prices and EBIT multiples down further.
M&A advisory firms with access to specialist M&A local and international databases that record and track the acquisition aspirations of large numbers of these leading companies, and who have regular and ongoing direct interaction with their in-house M&A teams, are very well placed to achieve great outcomes for their vendor clients.
Those same databases are being used increasingly by the ASX and international listed acquirers to perform acquisition searches to source possible targets from specific industries.
Contact Divest Merge Acquire on 1800 700 111 for more information.