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.

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February 2017: Consulting M&A Update

 By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

Blackstone acquires Aon’s human resources outsourcing business

The Blackstone Group agreed to pay up to $4.8bn to acquire Aon’s human resources outsourcing business. The Aon unit processes work benefits for 15% of the US population and is a provider for cloud-based human resources management systems. Blackstone is believed to have prevailed over buyout firm Clayton Dubilier & Rice in an auction for the business.

Aon acquired the business in 2010 as part of its $4.9bn acquisition of Hewitt Associates. The transaction with Blackstone is expected to enable Aon to focus on growth areas like cybersecurity and health insurance, while using part of the proceeds to buy back shares.

The deal will be structured whereby Aon receives $4.3bn in cash, plus up to another $500m in earn-out.

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Three reasons to set your acquirer lens to panorama

Panoramic Cropped

This blog focuses on how you can dramatically improve your odds of selling successfully, to the best buyer, with the best deal.

When selling to trade buyers, there are two main ways owners end up in a company sale process situation:

The market comes to you – This is where a buyer makes an uninvited approach to you about selling, you are attracted to the idea and pursue a single buyer process.

You go to market – This is where you’ve decided that the time is right and you want to launch a formal process to ‘go to market’ and find the ideal buyer.

To a layman, the first scenario has many attractions and the latter has some risks. However Equiteq recommends that you proceed with a single buyer process only in exceptional circumstances. There are three reasons why going to market should better serve your interests and reduce your risks.

1. Buyer demand is wide and increasing

Don’t limit your ambition and increase your risk with one buyer, when there is a large universe of potential buyers across the globe and their demand for acquisition is increasing.

Equiteq tracks all of the deals that happen in the consulting and professional services sector, from engineering to media consultancies. In the last 5 years nearly 6,500 buyers have acquired just over 10,000 firms, practices, or agencies. The pool of interested parties for your company will be diversely spread across different acquisition drivers and interests.

Economic and commercial globalization, plus technology convergence, is driving the need for larger firms to maintain growth by attracting and servicing an increasingly multi-national client base.

2. Your objectives when selling will be better satisfied

For most owners, maximizing financial proceeds is a primary outcome objective, but often different shareholders have varying financial concerns. If you have been approached by a buyer that unequivocally satisfies everything you dreamed of as a new home for your firm, all shareholders can be satisfied and price/deal structure is not your dominant need, then this may be a reason to seriously engage on a deal process with them as your preferred bidder. However, all of your eggs are in one basket and if the buyer pulls out for any reason, the deal is dead.

The most significant gain in going to market to attract multiple bidders is deal leverage and choice of home. Typically, going to market would include a filtering process on the 30 to 80 buyers approached, yielding 4 to 10 good quality bidders. This is the stage where leverage is at its maximum before ‘going exclusive’ with your preferred buyer, under a Letter of Intent with Heads of Terms agreed.

3. Transaction completion is significantly more likely

Notwithstanding the loss of choice on the ideal home and lack of leverage to get the best deal, there are two risks associated with a single buyer process – the elapsed time to close and closure probability, where these factors are mutually inclusive.

In the real world, from start to finish, a deal without any complications will take about 6 months. The risk for you is that the longer it takes, the more opportunity there is for something outside of your control to occur that causes you or the buyer to withdraw. Unfortunately, there is usually more at stake for you than your buyer, so in a single buyer process he can easily drag his feet, because the only significant leverage you have is to pull out.

If you have multiple bidders in place before exclusivity, you have a large amount of control over the selection of the hungriest buyer, the milestones he needs to satisfy while under exclusivity, and the terms under which the price is defended or improved while in due diligence.

Book a strategy discussion

If you’re considering the question “who will buy my firm?” and would like to get our insights on your market position, valuation potential and exit timing in a well prepared online call or meeting tailored to you, then please contact strategyreview@equiteq.com.

You can read the full article that this blog is based on here.

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