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.
The number of transactions in the first quarter of the current financial year increased on the previous quarter significantly and was 3% higher than the same quarter in the prior year, which suggests activity is returning after COVID-19.
The average deal size increased, from $11.1 million in Q4 2020 to $14.4 million in Q1 2021, an increase of 29%. The average deal size over the last 12 months however has dropped from $22.9 million to $19.4 million, a decrease of 18% from the average deal size of the prior 12 months.
Information technology (18%), industrials (16%), consumer discretionary (16%) were the most active sectors during the quarter, followed by communication services (14%) and materials (9%). Combined, the top 5 sectors represent 73% of all transactions completed in the quarter.
The most noticeable increase was in the consumer discretionary sector which had 22 transactions in the quarter. Other significant sectors were the information technology and industrials sectors which had 21 and 20 transactions respectively.
The utilities sector which was down by 1 transaction from last quarter, and the health care sector remained consistent to last quarter.
Overseas acquirers represented 26% of all transactions. The United States and China were the largest acquirers of Australian companies with 8.5% each of all acquisitions in the quarter. The UK, Canada, Hong Kong, Switzerland, New Zealand, France and Finland were also actively acquiring Australian companies over the last quarter but on a smaller scale.
Overseas acquirers were predominantly active across the consumer discretionary, industrials, and communication services sector, which represents 59% of the total overseas transactions. In comparison to this period last year, activity has remained steady.
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 increased by 8% and 1% respectively from the prior quarter. The Nexia MM Index increased by 4% in the current 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.
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 October 2017 to 30 September 2020. 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 1,303 transactions are included within the data analysed. Transaction values were disclosed for 605 (46%) of these transactions with an aggregated transaction value of $20.6 billion. 59 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 1.0x to 47.1x in FY2017, 3.3x to 45.0x in FY2018 and FY2019 is 2.6x to 12.3x. The range for FY2020 is 2.6x to 22.0x.
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.