EDGE 2024: Properly preparing for M&A

In the realm of mergers and acquisitions (M&A), the landscape is not limited to a single route as it may have been in the past, according to an expert from KPMG.

However, the key to being successful in M&A is knowing strategic reasoning upfront so buyers can act quickly when assets become available.

Daniel Teper, partner mergers and acquisitions and head of fintech for Australia at KPMG, said at EDGE 2024 that sellers need to understand market players, their pain points and their requirements.

“A business is only ever worth what someone is willing to pay for it at that point in time. Many great businesses don’t trade due to timing, market misunderstanding, or buyers’ positions,” he said.

“Getting any transaction done is hard, but with proper preparation and the right party, opportunities exist.”

According to Teper, buyers typically favour premium-for-scale, high-performance businesses with strong revenue growth and sustainable operations while the strategic rationale should go beyond financial metrics.

“This is not a comprehensive list of considerations for buyers and sellers, but a range of qualitative factors such as culture, market position, brand, technology and client base can influence valuations,” he said.

“Valuation is an art, not a science and focusing on key business fundamentals like profitable growth in high-demand areas is a good starting point.”

Teper also said that markets increasingly consider underlying capabilities and technologies. Modern technology and associated services are in demand, especially early-stage tech, which can potentially command premium prices.

“Building niche capabilities where the market is short ensures a deep and motivated buyer pool,” he said. “On the buy side, clearly articulate your requirements and narrow your target list to meet your strategic agenda.”

However, he warned buyers that they may not find a willing seller because many businesses, even large and sophisticated ones, lack an established M&A strategy, which can lead to failed acquisitions or missed opportunities.

“Being prepared and getting stakeholders’ sign-off on acquisition criteria early ensures competitiveness and quick reaction times in transactions,” said Teper.

He noted that perfect acquisitions and timing are rare, so both buyers and sellers must be flexible to succeed in executing growth strategies.

“Sometimes you need to compromise to achieve your strategic objectives,” he said. “On the sell side, articulate your intentions and objectives early and take action to meet them. Control what you can and be prepared to respond to potential buyers.”

According to Teper, sellers must stay prepared without necessarily advertising a sale. Clearly define success for both business goals and ownership goals.

“Too many owner-managers wait too long and miss opportunities, leading to a decline in business value,” he said. “Decisions like establishing a strong management team and infrastructure benefit shareholders regardless of an exit.”

To maneuver around this, planning upfront helps maintain control and minimise surprises, said Teper.

“Being deal-ready means preparing for a sale process or responding to a buyer’s approach with speed and competence,” he said. “One of the biggest reasons transactions fail is time. Timely navigation of the process minimises execution risk and maximises deal value. Avoid distractions to the business during transactions to protect its value.”

Teper said that he often works with clients months or years before a transaction. With some items being considered during or immediately before a transaction, however, good corporate governance and reporting should be established early.

“This ensures an efficient transaction process and sets the business up for post-transaction success,” he said. “Transactions are long processes involving multiple stakeholders and factors, often taking months or years of engagement and planning.”

External and internal factors, including market conditions, can impact deals. Teper said upfront planning and engagement maximise the chances of success.

“For buyers, this means clear market mapping, early stakeholder engagement, and a process for post-deal integration,” Teper added. “For sellers, it means clear succession and exit planning, engagement with key management, and ensuring flexibility and focus on business performance.”

But both parties must have adequate planning so that they can execute efficiently and reap the rewards of M&A in an ever-changing market.