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  • 5 December 2018

We are happy to present the quarterly instalment of our mid-market M&A overview.  The focus of the analysis is on the current quarter with the aim of providing you with a brief overview of current mid-market M&A activity.

Overview

The number of transactions in the first quarter of the current financial year increased by 27% on the previous quarter and decreased by 23% compared to the same period last financial year.  

While the number of transactions increased, the average deal size decreased from $25.5million in Q4 2018 to $17.6million in Q1 2019, a decrease of 31%.  The average deal size over the last 12 months was $21.2million, a decrease from the average deal size of the prior 12 months of 21%.


Sector

The industrials sector (23%) was the most active sector during the quarter followed by the consumer discretionary sector (15%) and information technology (15%). Combined, the top 3 sectors account for over 67% of all transactions completed in the quarter.

The most noticeable increase was in industrials and communication services sectors, which increase for respectively 83% and 100%. Other significant movements occurred in the healthcare sector which decreased by 64% to 5 transactions, compared to 14 transactions last quarter, and the consumer discretionary which decreased by 30% to 19 transactions, compared to 27 transactions in the prior quarter.

Geography

Overseas acquirers represented 38% of all transactions.  US acquirers were the largest acquirers of Australian companies with more than 13.5% of all acquisitions in the quarter. 

Other significant acquirers of Australian mid-market companies were: Vietnam (6% of total cross-border) of which 43% were focused on the consumer discretionary sector; New-Zealand acquirers (3%) with 50% focused on the information technology sector; and UK acquirers (2%) of all acquisitions which is in line with the prior quarter.

Overseas acquirers continue to remain active across the consumer discretionary, IT and industrials sectors however, in comparison to this period last year, activity has decreased by 44%, 30% and 12%, respectively. There was an increase in transactions in communication service which represented 9% of all cross-border acquisitions in the quarter.

EBITDA multiples

The Nexia MM Index (see below regarding methodology and limitations) is compared to relative ASX indices in the graph.

The ASX Emerging Companies index and ASX All Ordinaries index have decreased by 7% and 2% respectively from the prior quarter, with ASX Emerging Companies remaining 27% behind of the same time last year and the ASX All Ordinaries 2% behind.  The Nexia MM Index has also decreased over the quarter.

One transaction can have a significant impact on the Nexia MM Index.  To provide more insight into the Nexia MM Index, we have highlighted the EBITDA and multiple of some of the transactions.

Although, the same limitations apply to this analysis as the overall index, the analysis bears out the relationship between multiples and size with lower EBITDA generating companies also receiving a lower multiple. It also provides an insight into the relative sector multiples. 


Methodology

The analysis was prepared based on data sourced from S&P Capital IQ at the end of each quarter.  Our data set has not been updated for transactions that may be added to S&P Capital IQ retrospectively as data becomes available.  Data analysed is for completed transactions, with a primary geographic location in Australia and an implied enterprise value of less than $200 million from 1 July 2016 to 30 September 2018.  Transactions where no value was disclosed is included in the volume data with the implicit assumption that these would relate to smaller transactions and therefore meet the criteria.

Overall 1,859 transactions are included within the data analysed.  Transaction values were disclosed for 819 (44%) of these transactions with an aggregated transaction value of $21.9 billion. 102 transactions (5%) had sufficient data disclosed to calculate the EBITDA multiples.

In respect of our methodology we note that this is a simple analysis to give an overview of the market and potential movements.  It should in no way be seen as a substitute for a rigorous review of any potential opportunity that you may be considering and you should seek appropriate professional advice for your circumstances.
We note that the source data is limited by the amount of information that is made public and captured in the S&P Capital IQ database.  The calculations we have performed, in particular due to the limited number of data points in respect of EBITDA multiples, can be heavily influenced by a single transaction which reflects that transaction’s particular circumstances rather than a reflection of the market as a whole.

Analysis of all transactions, including sector and buyer location is based on S&P Capital IQ classifications.

About the Nexia MM Index

The Nexia mid-market EBITDA multiple (Nexia MM Index) analysis is a simple analysis of EBITDA for acquisitions of unlisted mid-market companies where the data is reported.  It is indicative of a trend in the overall market rather than implying the multiple that should be considered for a particular company.  The Nexia MM is limited by a number of factors, including that there are a small number of transactions in Australia where the data is available.  As a result the average EBITDA multiple can be significantly influenced by individual transactions where the specific characteristics of the transaction may have resulted in a higher or lower multiple than would otherwise be achieved.  To minimise the impact we have shown a rolling annual EBITDA multiple for disclosed transactions above.

In considering the data against the listed company comparative, the Nexia MM is based on acquisitions and therefore implicitly reflects a control premium whereas the multiple for the listed companies reflect a portfolio interest.

The range in the identified EBITDA multiples is significant at 0.1x to 60.0x in FY2016, 1.0x to 47.1x in FY2017 and 3.3x to 45.0x in FY2018. The range for the current year to date in FY2019 is 4.0x to 23.5x.


Contact us

If you would like to discuss further any of the information provided in this update and how it will impact you, please contact your Nexia Advisor. 

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