2022 – The Year of the Transaction

Merger and Acquisition (M&A) activity showed signs of increase in 2021 and 2022 promises to be the year of the transaction.

The boost in M&A activity is a result of a number of factors, including COVID-19. The pandemic placed businesses in an environment where management had no immediate playbook to guide them. Business was disrupted with some winners but many smaller businesses going through tough trading periods.

Some business owners took the opportunity to buy market share, at perhaps a lower price. Others sold up, changed the management structure or brought forward their retirement.

Debt has been relatively cheap and capital relatively easy to raise. There has been no shortage of business opportunities.

But transactions come with some risk and not all are successful.

• STRATEGY - be clear on why you are doing what you are doing.  Have a defined business strategy as your start point.
• PRICE & VALUE NOT THE SAME THING - It is essential to understand the value of any business you are buying or selling. For privately held businesses there is no open market like the stock exchange and price is only determined at the time of transaction.
• BEING TRANSACTION READY - one common reason why transactions fall over is because one or both parties are not transaction ready. Both sides need to have people and time available to focus on the transaction.
• UNDERSTAND YOUR COUNTER-PARTY - Most transactions have a known counter-party. Understanding the people you are dealing with is essential.
• BE CAREFUL ABOUT SYNERGY VALUE - In any M&A transaction there may be synergies. But most buyers overestimate their value.
• USE AN EXPERIENCED ADVISER - An experienced adviser will pay for themselves many times over. They can help avoid the pitfalls in a transaction. Importantly they can be dispassionate about the opportunities.
• BE PREPARED TO WALK AWAY FROM THE DEAL - Not every deal is a great one. Sometimes the smartest move is to walk away.
• IT DOESN'T GET BETTER THAN THE HONEYMOON - if you need to keep dealing with the other party after the transaction, an effective working relationship and respect are critical.
• THE DEVIL IS IN THE DETAIL - Ensure all the key agreements are fully documented and good legal advice is obtained before signing them.

Following these steps, will increase the likelihood of a successful transaction.

Written by Greg Hayes

Greg Hayes is a director of Hayes Knight in Sydney and leads the corporate finance team, assisting clients across Australia with valuations, due dilligence and transaction negotiations and completion.