Business must focus on adding value as M&A activity is on the rise: HLB Mann Judd Sydney

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As transaction and merger and acquisition (M&A) activity hots up, those businesses that can demonstrate real value and a solid business model will be the ones targeted for lucrative transaction offers, according to HLB Mann Judd.

Tony Kabrovski, business advisory partner at HLB Mann Judd Sydney, says 2014 is starting off to be a better year for many businesses and as such it is important that proprietors focus their attention in the right direction to ensure increased, and sustained, business value.

“Businesses need to evolve to ensure they are meeting customer needs and must act proactively. It is not just a matter of employing the right people, having well trained staff and having a clear service offering.

“Unless a business can define its value proposition, identify its key clients and how it reaches them, and ascertain if its pricing structure is appropriate and profitable, success will be difficult,” Mr Kabrovski says.

“Current profitability is not enough. A consistent approach and a strong management team are key. Business owners must be clear of what is leading to the current business success to know whether it is sustainable.

“Those businesses that rest on their laurels and allow their model to stagnate are risking their future,” Mr Kabrovski says.

Simon James, audit and advisory partner with HLB Mann Judd Sydney, says M&A markets are picking up and successful businesses with sustainable business models are of interest to buyers and investors.

“There are not many initial public offerings (IPOs) at the moment, but there are a huge number of transactions being discussed and HLB Mann Judd has been providing an increasing amount of advisory and valuation services in recent times.”

He says interest in the Australian market from overseas entities is strong, driven partly by the falling Australian dollar, and party by the strength of many businesses in Australia.

“The $A has deflated by 25 percent since its high, so a business that would have cost an overseas investor A$10 million six months ago, is now a couple of million less if they are buying in USD.”

Australia has seen a lull of five years reluctance for business owners to sell their business and there is a lot of pent up demand for quality enterprise, Mr James says.

“During the years following the GFC, businesses that would have ordinarily come onto the market did not. Proprietors and investors have now realised the current environment is the new normal, and that business growth plans should no longer be placed on hold.

“Lots of businesses are being approached for acquisitions, and prices are 30-40 percent higher than they were a couple of years ago as markets continue to rebound.

“While most businesses don’t have a ‘for sale’ sign over the door, should there be an expression of interest most proprietors are happy to have the conversation.

“Our facilitation of these conversations is a good way to sell as it ensures that confidentiality is kept, staff are not unsettled and competitors can’t use the prospect of your business sale to destabilise operations,” he says.

Key to a successful transaction is knowing what your business is worth, and Mr James says it is surprising how many owners don’t know this.

“‘Cash and income’ is one thing, and most proprietors are aware of the dividend stream, but capital growth, which is the key to future prosperity, sometimes eludes them.

“The sale process is more sophisticated than it used to be. It is not a case of a broker trying to market your business. It is about the business valuation and knowing what it is worth on a global sale. Advisory firms with a global M&A deal book can help in this process by matching up the buy side and the sell side to ensure the needs of both are met.”

Above all, knowing the business’s value is key.

“If you don’t understand the valuation method, you can’t know who will be prepared to pay a premium for your business, and why,” Mr James concludes.

HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.

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For more information please contact:

Tony Kabrovski – Phone: 02 9020 4109
Simon James – Phone: 02 9020 4212

5 February 2014