New regulations to impact future M&A activities

29 May 2024

Family offices and corporations are exploring M&A opportunities, focusing on asset sales due to economic volatility. Buyers prefer direct negotiations and underwritten agreements, while new regulations may complicate future deals.

Over the past six months, family offices and corporations have continued to explore merger and acquisition opportunities. Many using this time to reassess their strategies and conduct comprehensive portfolio reviews of their operating businesses, leading to an increased focus on asset sales and corporate carveouts. However, due to the unpredictable macro-economic and geopolitical landscape, buyers are now more cautious and less willing to take on relatively lower risk for the same returns compared to before.

Buyers are looking for real earnings, actual results and underwritten agreements to guarantee future revenue and profit forecasts in transactions. As a result we are running less formal sale processes and instead facilitating more direct bilateral conversations between buyers and sellers.

They want the access to management that you may not get in a formal, broader process situation led by deeper strategic fit requirements (e.g. upfront synergies, talent pool, fulfilment capacity, client acquisition capability etc.,) rather than typical financial accretion. Some sellers are also approaching us to assist with more matched deals, where they mandate us to negotiate a transaction with one buyer as they are comfortable that a broad process is not required for price discovery.

Private equity players continue to focus on growing their existing portfolios in preference to adding new platforms to their holdings, however we are expecting that to shift to deployment of new funds in the second half of this calendar year.

A new challenge for M&A activity in the years ahead will be new federal government rules which take effect from 1 January 2026 requiring companies to notify and receive clearance from the Australian Competition and Consumer Commission (ACCC) for proposed mergers and acquisitions over certain thresholds.  Significantly the cumulative effect of all mergers within the last three years by the buyer or seller will be aggregated to assess whether a merger meets the notification thresholds, irrespective of whether those mergers individually were notifiable to the ACCC.

Where a transaction exceeds the filing thresholds, which will be developed in industry consultations over the next 12 months, it will be mandatory to notify the ACCC and seek clearance. While this takes place, the transaction will be prevented from completing.

We expect these proposed changes will add to the uncertainty and cost of deals – due to the potential of triggering material adverse change clauses, whilst waiting for clearance – and increase the administrative burden on merger parties.  We could see more debt recapitalisations or delays in exit planning come back in play to get capital out of investments, if prospective parties feel the new processes are too difficult to satisfy or overly increase uncertainty.

Equion continues to work with the ecosystem partners of Victor Smorgon Group, often working with Arrowpoint Capital and Lineage Group to build optimal solutions for family office and business family clients.

One such transaction in recent months was the sale of QMV, an independent  Australian financial services consulting firm to superannuation, wealth management, banking and insurance firms, on their sale to Novigi, a leading data and technology partner to the financial services industry. The private equity backed deal created a new super-power in financial services consulting, which will have a unique opportunity to expand automated service offerings and scale into key areas such as technical support services. Equion worked alongside Lineage to deliver this successful outcome. Equion also advised the Wynne family on its successful acquisition of Sharps Australia, a leading provider of vehicle hazard assessment and removal organisations in Australia. The transaction was funded by Arrowpoint.

Looking ahead we are wary of regulatory changes which may have implications for M&A activity in a range of sectors, including proposed amendments to migration laws aimed at enhancing productivity in Australia and promoting inclusivity and ongoing discussion on federal government changes to the National Disability Insurance Scheme will also impact how access to the scheme is determined, how participant needs are assessed and how participant budgets are set. While the federal government says the changes will make the NDIS more sustainable and put participants back at the heart of the scheme, the state governments and territories are wary and have called for them to be delayed amid concerns about their speed and cost.

All of this will have significant ramifications for investor confidence in investing in the healthcare sector and give good reason for caution in the months ahead.

A leading corporate advisory firm, Equion Capital provides a wide scope of advisory and transaction-related services across the full transaction spectrum.  Working with privately held or family-owned businesses to publicly listed corporations, Equion focuses on long term objectives whilst acting in the present, delivering commercial value and outstanding outcomes. To learn more, visit www.equion.com.au