Our view on this is yes, with some important caveats.
Firstly, and now more than ever, a business really needs to be across its numbers and have a well-articulated outlook by way of some forecasts underpinned by the key assumptions and appropriate commentary.
Secondly, the impact of COVID-19 on the business (positive or negative) and the likely impact going forward needs setting out clearly. There needs to be an endurable business model underpinning the business and the sector – this is NOT the case at the moment for the airline industry, to name just one of quiet a few.
Those sorts of distressed deals will not be good for vendors. Some other sectors are doing well so far, food, technology, and defence to name but three.
Finally, buyers will need to be genuinely strategic and have already identified that they need the market share and/or the capabilities/IP on offer through the acquisition.
What we are seeing from buyers right now
We received two offers last week for mid-sized businesses we represent from genuine strategic acquirers. What is clear to us is that the spread is starting to widen. What we mean by that is that typically buyers want to pay less than the vendor wishes to sell for – our job is to help close this gap!
Right now, we are seeing a widening of this gap as parties differ on their views of the future. However, this is not the situation for all buyers in all circumstances. The more motivated and qualified the buyer the narrower the spread, and on occasions there is no spread at all!
We also think that the overseas buyers will go quiet for a while. The lack of normal international travel will make it more difficult for them to conduct investigation and due diligence. It will not be impossible, but it will be more difficult. Having said that, a European buyer is planning to commence due diligence next week on a client of ours in Victoria. They however already have operations in Australia which is making this task easier.
The good news
The good news is that motivated private equity interest for business assets in Australia is at unprecedented levels and this is becoming a viable option for some vendors, especially when they are already invested in the sector. However, local trade buyers in your vertical or an adjacent vertical who understand the space continue to present the best and most viable outcome when selling, especially where synergies are available. Local ASX listed buyers we think will become very active as demand softens and inorganic growth starts to look even more attractive.
The reality check for vendors is that the average transaction timeline from start to finish, including a comprehensive sweep of the market, is 13 months. We feel this timeline could lengthen, so now is the time to begin to get ready if you are contemplating any sort of exit event in the next 2-3 years. An exit is a process, not just an event and some planning is essential.
What about acquisitions?
We are also currently engaged on the buy-side and are seeing good off-market opportunities emerging for clients wishing to expand by acquisition.
Our advisory services are currently in high demand as we begin to help clients navigate the current turbulence by providing practical advice, guidance and support to business owners whatever stage of the business lifecycle they are in. These services are articulated in some detail on our new website.
We will continue to provide updates and thoughts so please sign up to our blogs or have a listen to our podcasts as things unfold in FY21.