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The Morgan Shaw Advisory (MSA) on Monday said 2023 was shaping up to be an ideal year for business owners to consider handballing their company off to someone else.
The mergers and acquisitions (M&A) advisory firm said despite warning signs of a global recession, the prospects for a healthy business with steady growth and a good balance sheet remained strong.
In fact, MSA reported that challenges caused by a sliding market could even present opportunities for more business operations in key sectors in Australia.
The key sectors for M&A activity are those likely to become a higher focus for consumer spending in the future. According to MSA, these include electrification and digitisation, energy and defence and education, health, and security.
Why now?
Mergers and acquisitions can be influenced by various factors, including economic conditions, industry trends, and geopolitical events.
The global pandemic, of course, significantly impacted the business world, with some companies struggling to survive while others have thrived.
However, according to a report by global software provider Intralinks, the sectors thriving in the aftermath of COVID-19 are ripe for M&A activity.
The Intralinks 2023 Global M&A Dealmakers Sentiment Report was conducted in the second quarter of 2022 and surveyed 300 M&A dealmakers from 225 corporate firms and 75 private equity firms across North America, Europe, the Middle East, Africa, Asia Pacific, and Latin America.
The research discovered that 62 per cent of respondents expected an increase in the overall levels of M&A activity over 2023.
Of those surveyed, 21 per cent of dealmakers described their principal sector of focus in the future as technology, media and telecommunications.
Around 18 per cent saw their focus on research chemicals, energy, mining and chemicals, and financial services.
Up to 46 per cent of the companies focusing on these industries have a yearly income of more than US$3 billion (A$4.5 billion).
According to Intralinks, 42 per cent of M&A specialists expect to conduct four or more deals throughout 2023.
Of course, the activity will not be without hurdles: roughly 72 per cent of survey respondents expect environmental, social and corporate governance (ESG) factors to fall under deeper scrutiny in M&A processes over the next three years — an increase of 10 per cent from 2022.
Meanwhile, 68 per cent said they expected deal automation to affect M&A processes in the next 12 months, compared to 42 per cent last year.
What does this mean for Australian businesses?
If dealmakers around the world are looking for new opportunities, it stands to reason that the Australian M&A industry would be in the same boat.
MSA said that by gaining a head start on viewing one’s business through the lens of future acquisition potential, business owners could prime themselves to receive large-scale offers.
“Of course, your financial strength, revenue profile, IP, client profile, and business maturity are going to be under scrutiny,” Managing Director at Morgan Shaw Advisory Graham Morgan said.
“Your business is more than just numbers in a spreadsheet: potential acquirers today want to know that they are buying into a business that can sustain itself and offers opportunities to excel in the market.”
The MSA consulting firm stated that now was the time to get a business ready for sale in Australia.
“It is always advisable to run your business such that you can choose to exit when a lucrative opportunity comes along,” Mr Morgan said.
“For us, being ‘game ready’ is being prepared to portray your business in the best possible way to the ideal buyer without waiting around for your accounting department to catch up.”
The firm offers support for businesses looking to enter the deal room, from raising capital to acquiring other businesses to issuing an IPO or selling the business itself.
While the ability to generate sales and turn a profit is key, companies holding a solid structure and process in place with the ability to adapt will be the kind of businesses primarily sought after.
