Market Update: Current state of play for the sale of your business
The general climate for divestment activity in Australia has been strong for some time. Despite recent jitters on the ASX, equity funding is readily available in a wide variety of forms for good quality opportunities and we have worked on a number of successful IPOs in the last 12 – 18 months across several offices.
We are seeing strong interest from private equity funds, family offices and high net wealth private clients for investments in a range of sectors.
In the year ended 30 June 2017 PE Firms raised $2.03 billion based on figures provided by AVCAL and reported in the AFR on 8 December 2017. When local venture capital groups are added the new fund tally raises to $3.4 billion. These firms have built a war chest and have specifically identified quality private businesses considering exits or partial exit options.
In 2020, when the oldest Boomers hit their mid 70's, we will witness the biggest intergenerational wealth transfer in history. However, the statistics below would seem to indicate that this may not necessarily indicate that business succession always means handing a business down to the next generation of the family.
Source: The MGI Australian Family and Private Business Survey 2013 and The KPMG Family Business Survey 2015
The above statistics indicate that less generational handover of business or succession is occurring and that the manner in which business owners may have planned to divest their business (pass onto next generation) may not eventuate – therefore an external sale process may need to be considered.
In addition to the activity of the PE firms, corporates are increasingly pursuing mergers and acquisitions to achieve their growth objectives and we are also seeing increased activity from foreign companies seeking acquisitions in Australia (see graph).
As can be seen by the statistical breakdown of the sale transactions depicted above, by far the biggest quantum of deals occur in the sub $100 million range. This is comprised largely of the SME market where vendors generally have more to lose personally, comparatively speaking. It is more common to observe that this category of business owner has often re-invested wealth back into their business to fund expansion and growth to the detriment of personal wealth accumulation. Consequently, more may be riding on the outcome of a sale to fund them into retirement. This may require greater support from external advisers as internal resources are either scarce or not experienced enough to be able to manage such a transaction and achieve a superior outcome.
Don’t leave the process to chance – for those business owners considering a sale in the next five years – now is the time to start considering the alternatives and planning. Issues such as ownership structure, tax exposure, value of business, how to improve value and which parties and how to approach them are all key factors.
Even for business owners fortunate enough to be approached by a prospective purchaser – expert advice could be the key to ensuring business value is maintained and no inadvertent leakage occurs during a sale process. This is where thorough planning and precise execution of a sale strategy can prove all the difference.
PKF Corporate Finance has assisted many clients with sell side advisory mandates and know that the sale of your business, or a division of a business can be a complex and important transaction. If you are thinking about succession or the sale of your business or consider it a realistic option in the short to mid term (three-five years) you should consult with your PKF adviser on how PKF Corporate Finance is able to assist.