The Australian M&A market outlook

A recent report from Source Global Research suggests Australia has overtaken the US and UK as the second most attractive consulting market in the world – only behind the DACH market (Germany, Austria and Switzerland).

International firms see the Australian economy as a resilient market – which is perhaps no surprise given it’s enjoyed 25 years of consecutive growth – and a strategic outpost to further their goals in Asia. According to the report, the use of consulting services and advisors in the country is now at a level that will garner considerable interests from international businesses and, we believe, act as a catalyst for a significant increase in M&A activity in the coming months.

What’s driving demand for professional services consultants?

The professional services (PS) sector is an important contributor to the Australian economy, employing more than 2.2 million people. Growth in the industry has been driven by demand from complex businesses, which rely on consultants to introduce new innovative processes to improve their products or services and simplify the way they operate.

This trend is reflected in the increased demand for the output of highly skilled labor, the growing use of outsourcing, and a range of technological advancements.

In the last decade or so, Australia has seen sectors such as financial services (FS), mining and engineering grow exponentially, which has driven demand for specialist skills and personnel, creating a high-value and service-based economy.

Geoff Stalley, Partner at Deloitte Australia, said: “Consultants and advisors are in huge demand in Australia at the moment. For instance, the energy and mining sector are increasingly relying on expert consultants to help them build more efficient models and operational technologies to manage risks and significant operating costs.”

And, as technological developments continue to increase the need for a skilled workforce, we can expect fixed wage levels to remain high, attracting even more consultants.

Which sectors are buzzing with interest?

As the economy has developed, businesses have been involved in a race to secure, for themselves a bigger share of an expanding market. In this new arena, every business is looking to digital technologies to give them that competitive edge.

The evolution of the digital economy is expected to accelerate the pace of change within every sector. With the current level of technological disruption, organizations ill-prepared to adapt could run into significant difficulties.

Take Australia’s FS sector as an example – the largest contributor to the national economy and a major driver of economic growth. Although the Australian FS sector has been performing well in recent years, it is now under enormous pressure from innovative disruptors and the introduction of new technological advancements. Businesses are finding it harder to maintain and grow profit margins as new entrants increasingly compete on cost.

Geoff Stalley explains: “AI and machines are now more involved in running businesses at the operational level as advancements such as business automation take hold. Machines and technology are now critical enablers of business value and are changing business models driving a rethink of how companies operate.”

Industry leaders are building their digital capabilities in order to cope with the challenge posed by innovative disruptors, as well as rising labour costs. This means companies are on the look out for experts and knowledge-based organisations to provide the support and the necessary technological infrastructure they need to remain competitive in the marketplace.

Australia’s Westpac, for example, has established a venture capital fund, Reinventure Group, that is investing A$50 million in domestic financial and technology firms.

What about the M&A market?

The Australian PS market is a very vibrant sector with large global players, which have a strong, established local presence. According to the Equiteq 2016/17 Buyers Research report, global buyers of PS firms have indicated an appetite for businesses in Australia, which has seen significant M&A activities in the region.

In 2017, buyers are likely to continue to seek out niche, specialized areas of practice. We expect particular interest in growing digital and tech firms that have unique propositions and valuable Intellectual Property (IP).

Interestingly, 2016 has seen an increase in large PS firms making more cross-sector acquisition as they look to expand service specialties and clientele by way of multidisciplinary deal making.

Our advice is that it’s never been more important to be ‘sale ready’ as buyers will be put off – or will offer less than premium prices – for firms that are not prepared.

Key takeaway:

  • There is significant appetite from global PS firms players in the Australian market
  • Develop your IP to become competitive and to differentiate your offering
  • Become sale ready as soon as you can

If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

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