According to the latest William Buck merger and acquisition report, the last five years have seen merger and acquisition activity growing in the mid-market. For those wondering, ‘What is an acquisition?’, it is the purchase of control in another entity to deliver strategic or financial benefits.
While local transactions have grown, there’s also been a flurry of inbound activity for quality Australian businesses, driven by a weaker Australian dollar, a stable investing environment and a strong developed economy.
Trends show foreign buyers are paying a premium for local mid-market businesses, with foreign investment transactions higher than local ones. This trend was consistent over the last five financial years, with foreign buyers in mid-market deals paying an average of EV/EBITDA multiples of 13.2x compared with about 10.6x paid by local buyers.
With interest from foreign firms making Australian businesses more lucrative for a sale, there’s still big opportunity for businesses to consider adopting their acquisitive growth strategy to gain a competitive edge.
When assessing a business acquisition target, it should be value accretive and increase the value of the business, whether directly, in the case of increased earnings, or indirectly, in the case of achieving economies of scale. The choice of vehicle and post-deal structure also matters — see Trusts 101 to learn more and discuss with your advisor.
However, when pursuing growth for growth’s sake, few businesses succeed. An effective business acquisition should be tied to the buyers’ strategic objectives. Some of the more common characteristics sought when selecting a potential acquisition target are discussed below.
Financial performance
Targets may be profitable or unprofitable, but in each case, the acquirer must be confident the acquisition will add value (including earnings) post-completion.
Some acquirers may purposefully seek targets that are in financial distress in order to obtain a bargain, with the belief they have the ability to turn around the target’s performance. It is essential, however, to gain an understanding of the underlying reasons contributing to the poor performance and the subsequent implications. These factors must then be carefully assessed to ensure they do not permanently prohibit the target’s ability to generate profits and growth in the future. However, the latest data shows companies are taking an alternate route to acquisition ‚preferring to invest in quality companies which are profitable that will shortly shift from revenue valuations to profit valuations.
Target size
Determining the size of the acquisition target will depend largely on the experience and resources of the acquiring entity. Our analysis found that mid-market transactions continued to dominate the volume of M&A deals, with the largest segment being deals with a value of up to $100m making up almost 80% of all deals in 2025). Smaller transactions (deals under a value of $10m) made up approximately 45 percent of the volume of all completed transactions. Generally speaking, where experience and resources are limited, smaller targets should be pursued.
The attractiveness of an acquisition should not solely depend on the size of the potential target. Ensuring the target or buyer reflects the objectives of the acquisition strategy will be of greater importance and, subsequently, factors such as market share or synergies may be more significant than size.
Management and key staff
When reviewing a potential acquisition target, it is important to assess the capabilities of management and key staff and look at ways in which their skills can be used to fill gaps in the current business’ capabilities.
It is vital that the management and key staff required to ensure the future success of the business are willing to remain with the company subsequent to the acquisition (and can be locked in for a period of time post-acquisition). Conversely, it is important to look at functions or job roles that may overlap post-acquisition and have a redundancy strategy in place if required.
Cultural compatibilities
Differences in corporate culture is one of the major factors contributing to the failure of mergers and acquisitions. As such, cultural issues should be carefully considered prior to entering into any transaction.
Depending on the level of integration proposed, cultural compatibility may, or may not, be essential to the success of the transaction. Where there is a low level of integration required, the transaction is unlikely to cause any significant culture shock to employees and synergistic cultures may not be essential to the success of the transaction.
Where there is a high level of integration, culture shock can be a big problem that may eventually lead to key employees feeling unsatisfied and leaving the organisation.
Achievability of forecasts
Careful consideration must be paid to any forecasts (financial or otherwise) that may be relied upon in making decisions regarding the transaction, particularly where they are prepared by the target or on behalf of the target.
Financial forecasts may be based on unrealistic assumptions and can fail to take into account the distraction on a target during the acquisition process (which can stretch over a 12 month period).
Intellectual property
Mergers and acquisitions can be useful strategies for obtaining intellectual property, such as trade secrets and patents, complementary to existing assets.
The significant increase in transactions in the technology sector demonstrates the interest by buyers in harnessing these capabilities rather than building their own capabilities.
It is important that sufficient due diligence is carried out to ensure intellectual property is protected, the target holds full title to these assets, and they are not subject to any restrictions that may inhibit the intended benefits of the transaction.
Price and terms
Where the acquisition target is highly attractive, it can be easy for the acquirer to get carried away in the negotiation process. A transaction should not be completed at any cost to the acquirer. It is important to maintain an objective perspective and ensure that a fair price and suitable terms can be agreed upon with the potential target’s owners. Plan how you will begin financing a business acquisition, whether through model debt covenants, working capital, or integration costs. If cash flow pressure arises, practical options are outlined for managing and clearing your debts with the ATO.
Each acquisition will have its own individual characteristics and requirements. When selecting a potential acquisition target, it is essential to refer back to the unique objectives sought in the acquisition strategy and pay close attention to the acquisition profile established. Health-sector buyers considering starting in private practice may also value operational tips.
If you would like any further information on acquisitions, contact your local William Buck advisor.
