Economic uncertainty prompts SME to delay selling businesses
SMEs continue to account for the bulk of merger and acquisition deals but economic uncertainty has made business owners more reluctant to sell, according to a Grant Thornton report.
The SME sector continues to be the predominant acquisition target based on analysis of Australian mergers and accusations in the 18 months from 1 January to 30 June 2023.
Grant Thornton’s 2023 Dealtracker report shows that 32 per cent of deals completed in the period had a transaction value below $100 million.
“Our data tells us that foreign buyers continue to participate in deals in the lower end of the deal market, particularly in Industrials with opportunities shifting from IT,” Grant Thornton stated in the report.
However, the report noted there has been greater reluctance from SME owners to sell their businesses with volumes decreasing 13 per cent.
“In light of current economic uncertainty, tightening interest rates and cost of living pressures, business owners are choosing to postpone the sale of their assets until the economic conditions return to a more stabilised level,” the report said.
Despite the decline in deal activity for SMEs, SME deal valuations have improved compared to the 2022 report, with the median EV/EBITDA multiples increasing for all transactions below $200 million.
“SME deal valuations have improved compared to our last report and are above the historical average,” Grant Thornton said.
“While deal activity has seen a decline, buyers are paying a premium for businesses that demonstrate structural stability and long-term potential.”
Weakened economy dampens M&A deal volume across all sectors
The report also found that deal activity in general deteriorated in the period leading up to June 2023 compared with the previous 18-month period.
“While deal volume remained strong in the 2022 calendar year, the level of activity reduced during the first half of the 2023 calendar year due to a weakening global economy and continued geopolitical uncertainty,” the report said.
Merger deal volumes dropped 25 per cent in the first half of 2023 compared to the same period of 2022, reflecting a weakening global economy driven by various factors including political fragmentation, trade tensions, inflationary pressures, labour market shortages, and continued geopolitical issues.
“Investment Manager (IM) activity declined over the period, as investors took a patient approach to finding opportunities more resilient against economic uncertainty. Corporates proved to be the most active buyers, with 95 per cent of acquirers classified as corporate M&A deals, and 5 per cent as IM or private equity deals,” the report said.
Australia still attractive to overseas acquirers
The report indicated there is still strong interest in purchases of Australian businesses from overseas acquirers with overseas purchasers comprised 31 per cent of transactions.
This was up from 30 per cent in the previous Dealtracker period and in line with the upward trend observed in prior years.
“During times of economic uncertainty, overseas purchasers have continued to view Australia as a safe haven for investment,” said Grant Thornton.
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