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M&A AUSTRALIAN review 2017 Analysis of Australian Mid-Market Transactions

Transcript of AUSTRALIANstrategictransactions.com.au/wp-content/uploads/2017/03/...investment, and real estate,...

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Strategic Transactions Australian M&A Review

M&AAUSTRALIAN

review 2017

Analysis of Australian Mid-Market Transactions

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CONTENTSSummary� 3Transaction Overview� 4� Deal�Values�and�Volumes� 4Sales By Market Sector� 5� Consumer�Discretionary� 6� Consumer�Staples� 6� Energy�&�Utilities� 7� Financial� 7� Healthcare� 7� Industrials� 8� Information�Technology� 8� Materials� 9� Telecommunications� 9Key Acquisition Motivators� 10Transactions – By Geography� 11� Acquirers� 11� Sellers� 13� Earnouts�&�Deferred�Payment� 15About Strategic Transactions� 16� The�Transaction�Process� 16� ST’s�Purpose� 18� Contributors� 19

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Strategic Transactions Australian M&A Review

SUMMARYTHE AUSTRALIAN MIDDLE-MARKET

Our key findings are:� �There�was�a�moderate�increase�in�overall�volume�and�value�

of�Australian�company�acquisitions�in�2016.�Discounting�the�potential�global�ripple�effect�of�a�Trump-induced�downturn,��this�growth�is�anticipated�to�continue�in�2017.

� �Acquisitive�growth�will�become�more�common�as�more��baby�boomer�owners�seek�to�exit.�Technology,�low�interest�rates,�increased�competition�and�globalisation�will�also��increase�opportunity,�particularly�for�strategic�acquisitions��and�private�equity.

� �Food�and�beverage,�technology�and�healthcare�are�anticipated�to�be�the�most�rapidly�growing�acquisition�spaces�in�2017.

� �In�2016,�the�highest�number�of�deals�occurred�in�the�consumer�discretionary�and�industrial�sectors.�These�sectors�in�total�account�for�just�under�half�of�all�mid-market�transactions.

� �Of�all�acquisitions�of�Australian�mid-sized�companies,�25%��came�from�overseas.�The�USA�and�Canada�accounting�for��38%�of�those�acquisitions,�followed�by�Europe�with�30%.

� �Almost�10%�of�acquisitions�made�by�Australian�companies�were�of�overseas�entities.�Of�those�acquisitions,�around�36%�were�USA�or�Canadian�owned�entities,�and�another�33%�were�European.

� �The�most�common�stated�rationales�for�acquisitions�are�product�expansion/diversification�(50%),�geographic�expansion�(19%)�and�economies�of�scale�(17%).

� �10%�of�these�transactions�reported�some�form�of�earnout�where�the�terms�of�the�sale�included�a�specified,�performance�based�deferred�payment.

This�report�covers�calendar�year�2016,�and�reviews�417�completed�mid-market�mergers�and�acquisitions�for�both�listed�(ASX)�and�private�companies�in�Australia.�

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TRANSACTION OVERVIEW

DEAL�VALUES�&�VOLUMES

For�the�calendar�year�2016,�within��the�A$1m-250m�deal�bracket,�417�public�and�private�mid-market��buy/sell�activities�were�transacted�to��completion�and�announced�publicly.

This�equates�to�around�35�transactions�per�month�-�a�slight�increase�in�both�the�average�value�and�total�volume�of�transactions�compared�to�the�corresponding�period�in�2015.

An�estimated�$18.6b�was�transacted�across�417�recorded�midmarket�deals�in�2016.�For�those�M&A�activities,�March�2016�recorded�the�largest�value�of�completed�transactions�at�A$2.5b�followed�by�

April�with�A$2.1b�and�June�at�A$1.9b.�This�analysis�include�both�public�and�private�transactions�and�estimates�the�value�of�each�private�transaction�where�the�deal�terms�were�not�publicised.

DEA

L VA

LUE

(AU

$ M

ILLI

ON

)

572.88

1434.45

2459.22

2063.88

1457.19

1873.54

1371.83

1578.08

1864.25

1349.69

860.83

1367.09

0

500

1000

1500

2000

2500D

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NO

VEM

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OC

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SEP

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AU

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JULY

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MAY

AP

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MA

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FEB

RU

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JAN

Monthly Deal Values

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Strategic Transactions Australian M&A Review

SALES BY MARKET SECTORIn�2016,�the�most�prolific�sectors�for�mid-market�transactions�by�both�volume�and�value�have�been�consumer�discretionary�and�industrials.��

These�two�sectors�each�account�for�over��20%�of�all�mid-market�transactions.

a

b

c

d

e

f

g

h

a

b

c

d

e

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a Consumer Discretionary 23.98% b Consumer Staples 10.07%c Financial 10.55%d Health Care 8.15%e Industrials 21.10% f Information Technology & Telco 12.95%g Materials 9.11%h Energy & Utilities 4.08%

a Consumer Discretionary 24.31% b Consumer Staples 10.15%c Financial 11.23%d Health Care 7.62%e Industrials 18.91%f Information Technology & Telco 14.72%g Materials 9.67%h Energy & Utilities 3.39%

Mid-market�Transactions�

By Volume, By SectorMid-market�Transactions�

By Value, By Sector

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CONSUMER�DISCRETIONARYIndustries�in�the�Consumer�Discretionary�sector�tend�to�be�the�most�sensitive�to�economic�cycles.�They�are�goods�and�services�considered�non-essential�by�consumers�but�desirable�when�available�income�is�sufficient�to�purchase�such�goods�and�services.�These�include�automotive,�durable�household�goods,�and�leisure�equipment�among�others�for�the�manufacturing�segment.�Hotels�and�restaurants,�media�production,�consumer�services,�retailing,��and�others�comprise�the�services�segment.

There�was�strong�activity�in�the�automotive�industry�with�eight�transactions�that�averaged�A$21m�in�value.�Several�deals�resulted�in�the�restructure�of�distribution�channels�for�both�vehicles�(Automotive�Holding/Pickerings)�and�aftermarket�parts�(Bapcor).

Also�in�Consumer�Discretionary,�there�was�continued�vibrancy�in�the�Hospitality�industry�with�several�transactions.�Average�transaction�value�was�around�the�A$20-30m�range�and�were�led�by�leisure�and�investment�groups�of�which�around�18%�were�overseas�(Singapore�or�China�based).

Media�and�Advertising�sectors�also�had�an�increased�number�of�transactions�with�larger�publishing�organisations�such�as�Seven�West�and�Sequioa�Financial�Group�acquiring�synergistic�niche�businesses.�There�were�at�least�two�transactions�in�outdoor�advertising�with�oOH!�Media’s�A$11.1m�85%�acquisition�of�Junkee�Media�and�APN�Outdoors’�A$40m�purchase�of�Metrospace�and�iOM.

Five�acquisitions�of�residential�aged�care�properties�were�recorded�with�four�local�buyers�(Anglican�Retirement,�Aveo,�Mercycare�and�DutchCare)�and�one�Japanese�buyer�Sumitomo�Forestry.

CONSUMER�STAPLESIncluded�in�the�Consumer�Staples�sector�are�food�manufacturers,�personal�products�distributors,�drug�retailing�companies�as�well�as�hypermarkets�and�consumer�super�centres.�These�are�businesses�less�sensitive�to�economic�cycles.�Such�goods�and�services�are�considered�essential�regardless�of�economic�times�or�financial�state.

There�was�a�significant�shift�in�the�mid-market��food�production�areas�with�several�transactions�occurring�both�among�primary�producers�and�packaged�food�products.

Acquirers�included�cattle�farmers�(Paraway�Pastoral,�Agrify�and�Hancock�Prospecting),�dairy�(AAG,�Blue�River�&�Australian�Dairy�Farms�Group),�poultry�(TasFoods,�Sentinel)�and�seafood�processors�(Sea�Harvest�&�Legend).

In�packaged�food,�transactions�included�chocolate�(Simon�Crowe�acquiring�Koko�Black),�fresh�wasabi�(Tasfoods)�and�sauces�(Simplot).�While�there�was�constrained�activity�in�beverages,�notable�transactions�included�craft�beer�(Dixon�Hospitality)�and�wine�with�Casella�Wine’s�acquisition�of�Howcroft�Estate�and�Dunvar�Vineyard.�Two�thirds�of�food�acquisitions�were�private�to�private�transactions�of�which�eight�originated�from�private�equity�investors.

SALES BY MARKET SECTOR (CONTINUED)

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Strategic Transactions Australian M&A Review

ENERGY�&�UTILITIESThe�Energy�sector�is�comprised�of�businesses�involved�with�oil�rigs,�drilling�equipment�and�other�services�as�well�as�companies�engaged�in�the�exploration�or�production�of�oil�and�gas�products,�coal�and�other�consumable�fuels.�Utilities�cover�producers�and�distributors�of�electric,�gas�or�water�utilities.�Overall�deal�value�for�the�Energy�and�Utilities�sectors�was�A$656.2m.

In�oil�and�gas�production,�Mineral�Resources�paid�almost�A$9m�for�a�19.4%�stake�in�Empire�Oil�and�Gas�-�their�first�foray�into�the�gas�market,�while�Sundance�Energy�acquired�US�company�Eagle�Ford�as�part�of�their�focus�on�offshore�acquisitions.�In�addition,�the�Duet�Group�increased�their�aggregate�ownership�of�the�DBP�gas�pipeline�from�80%�to�100%.�In�the�Utilities�sector�6�of�the�11�acquisitions�have�been�of�companies�pertaining�to�some�type�of�renewable�energy.�It�is�not�only�a�social�corporate�responsible�move�but�also�a�move�in�a�future�proof�industry.

FINANCIALThe�Financial�sector�encompasses�companies�involved�in�activities�such�as�banking,�mortgage�finance,�consumer�finance,�specialised�finance,�investment�banking�and�brokerage,�asset�management�and�custody,�corporate�lending,�insurance,�and�financial�investment,�and�real�estate,�among�others.

We�covered�over�forty�transactions�with�total�estimated�deal�value�of�A$2.17b,�many�of�which�reflected�distribution�shifts�within�advisory�and�wealth�management�services�and�product/service�digitisation.

Activity�was�particularly�strong�in�funds�management�with�Investa�Wholesale�A$100m�transaction�ensuring�the�continuity�of�Morgan�Stanley’s�Real�Estate�Funds.�At�least�four�mid-market�transactions�occurred�within��the�insurance�industry�with�two�acquisitions�by�PSC�Insurance,�and�one�from�Zurich�and�CDPQ.�Forex�trading�featured�the�A$100m�acquisition�from�CHAMP�and�an�undisclosed�value�deal�by�Japan’s�Rakutan�acquiring�FX�Asia�in�its�first�foreign�investment.

In�addition,�the�acquisition�market�was�strong�in�digital�consultancies�such�as�Yellowbrick�Road,�online�mortgages�including�Pioneer�Credit�and�various�financial�advisory�firms�including�Infocus�Wealth�Management,�CML,�PPB�Advisory�and�Wise�Planners.�

Three�of�the�Big�Four�accountants�also�acquired�niche�businesses.�PriceWaterhouse�Coopers�acquired�Strategic�Intelligence�Group�(SIG)�specialising�in�infrastructure�modelling.�Deloitte�acquired�Sixtree,�a�back-office�platform�integrator�and�KPMG�acquired�Arilla,�an�indigenous�consultancy.�Acquisitions�by�the�“Big�Four”�are�often�marked�by�significant�pre-acquisition�periods�where�a�strategic�alliance��is�formed�and�the�sellers�services�are�provided�to��the�client�base�of�the�acquirer.�

HEALTHCAREHealthcare�covers�companies�who�manufacture�health�care�equipment�and�supplies�or�provide�health�care�related�services,�as�well�as�owners�and�operators�of�health�care�products.�It�also�encompasses�those�involved�in�the�research,�development,�production�and�marketing�of�pharmaceuticals�and�biotechnology�products.

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With�a�total�deal�value�of�A$1.48b,�there�was�a�robust�market�in�many�aspects�of�healthcare�ranging�from�pharmaceutical�products�and�diagnostics�to�hospitals�and�home�care�services.

Alternate�care�was�one�of�the�bright�areas�with�Total�Face�Group�acquiring�a�group�of�anti-ageing�clinics�including�Face�Today�and�Rejuvenat8�for�a�sub�$2m�consideration�as�part�of�their�ASX�IPO.

Australian�Unity�acquired�the�government�operated�Home�Care�Service�of�NSW�for�A$114m�while�Affinity�Equity�Partners�acquired�Primary�Health�Care’s�GP�practice�management�software�business�for�A$155m.

In�August,�Australian�based�Sasmar�Pharmaceuticals�acquired�US�based�Aquatrove�Biosciences,�a�biotech�focused�on�R&D�in�human�reproductive�health�and�fertility.�Finally,�in�December�BGD�Corporations�completed�the�acquisition�of�5�health�care�facilities�for�a�total�value�of�A$20.1m.

INDUSTRIALSIndustrial�businesses�are�those�who�manufacture�and�distribute�capital�goods,�and�those�providing�commercial�or�transportation�services.�Industries�in�employment�services,�airlines,�and�industrial�machinery�are�included�in�this�sector.

88�deals�were�recorded�in�the�industrial�sector�with�a�total�deal�value�of�A$3.66b.�The�last�quarter�was�particularly�busy�with�a�total�deal�value�exceeding�$1b.

There�were�two�mergers:�Hames�Sharley/Studio�53�and�Abeo�Design/Studio�Nine�in�the�architectural�sector,�while�in�civil�&�construction�Decmil,�Vinci�Energies�and�Tankworks�all�made�mid-market�acquisitions.

UK�&�USA�based�engineering�consultancies��Matrix�Service�and�Wood�Group�acquired�Bailie��Tank�Equipment�and�SVT�respectively,�while��the�multinational�engineering,�procurement,�construction�management,�and�operations�service�Ausenco�was�partially�acquired�by�Resource�Capital�Fund�as�a�consequence�of�its�debt�and�the�downturn��in�mining�activity.

Acquisition�activity�also�increased�in�the�Transportation�sector�with�Japan�based�Nishi-�Nippon�Railroad�Co.�acquiring�Maltacourt�Logistics�for�an�undisclosed�sum�in�order�to�expand�their�international�logistics�network.�Meanwhile,�Yusen�Logistics�acquired�Hitech�Asia�Pacific’s�sensitive�freight�logistics�service�specializing�in�medical�and�business�machinery.

INFORMATION�TECHNOLOGYInformation�Technology�includes�a�wide�variety�of�subsectors�including:�software,�IT�consulting�and�services,�technology�hardware�including�peripherals,�electronic�equipment�and�instruments�and�semiconductors.

Around�54�deals�were�penned�in�the�technology�space�for�a�total�of�A$2.85b.

The�year�started�with�Microsoft’s�acquisition�of�Event�Zero-�they�acquired�their�UC�Commander�product�suite�for�the�purpose�of�integration�into�its�Skype�for�Business�Services.�Australia’s�own�behemoth,�Atlassian�also�was�on�the�acquisition�trail,�purchasing�USA�based�company�StatusPage�providing�real�time�web�user�notifications�on�service�disruptions.

SALES BY MARKET SECTOR (CONTINUED)

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Strategic Transactions Australian M&A Review

Acquisitions�were�made�in�the�software�space�for�companies�such�as�Superconcepts�(accounting)�and�MYOB�(ERP),�but�there�were�greater�volumes�in�SaaS�including�Australian�based�Aconex�acquisition�of�German�based�Conject�for�A$96m�in�the�construction�SaaS�market.

Gaming�continued�to�generate�acquisitions�with�Tabcorp�acquiring�gaming�machine�monitoring�business�Intecq�for�A$128m.�ASX�listed�game�developer�Animoco�Brands�used�capital�raised�from�its�listing�to�acquire�Finnish�gaming�business�TicBits,�and�Sydney�based�international�payments�organisation�Banktech�acquired�Global�Gaming�Industries�(GGI).

There�were�several�online�services�acquisitions�including�domain�name�service�registers�InfoReady��by�Melbourne�IT�for�A$15m,�NZ�based�GeoOps�mobile�sales�application�acquisition�of�Interface�IT,�and�online�portal�acquisitions�by�Silver�Chef�in�the�hospitality�space�and�CV�Check�in�the�resume�space.�The�USA�had�a�keen�interest�in�the�Australia�IT�sector�and�was�responsible�for�50%�of�the�foreign�acquisitions�in�the�sector.

MATERIALSThe�Materials�sector�encompasses�a�wide�range�of�commodity-related�manufacturing�industries.�Included�are�those�that�manufacture�chemicals,�paper,�packaging�products,�metals�and�minerals,�and�mining�companies�to�name�a�few.

38�acquisitions,�valued�at�A$1,000m�were�recorded�in�the�mining�space.�Transaction�size�varied�from�just�above�A$3m�(80%�stake)�to�A$188m.�Canadian�companies�made�three�acquisitions,�while�Australian�miners�acquired�mines�in�the�UK,�Portugal�and�Ireland.

There�were�also�acquisitions�in�the�coal�mine,�plastic�pellet,�lithium,�packaging�and�energy�efficient�niches.

TELECOMMUNICATIONSCompanies�engaged�in�Telecommunication�Services�Index�are�those�concerned�with�providing�communication�services�primarily�through�fiber�optic,�cellular,�bandwidth,�wireless�or�fixed-�line�network.�These�are�companies�that�makes�communication�possible�over�the�phone�or�internet.�Total�deal�value�for�this�sector�is�A$284m.

Four�mid-market�acquisition�were�recorded,�including�two�by�telecommunications�reseller�Amaysin�Australia,�who�purchased�Australian�Broadband�and�Vaya�in�order�to�expand�their��service�offerings�while�adding�to�their�client�base.

Australia’s�Skymesh�Partnership�was�acquired�by�UK�based�Satellite�Solutions�Worldwide�Group�Plc�in�order�to�expand�their�international�network,�while�Australian�cloud�provider�Zettagrid�acquired�cloud�and�hosting�company�Conexim�as�part�of�ongoing�consolidation�of�the�Australian�cloud�and�hosting�market.

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KEY ACQUISITION MOTIVATORSAround�50%�of�the�press�or�ASX�acquisition�announcements�stated�that�the�prime�reason�for�the�acquisition�was�to�expand�or�diversify�their�product�or�service.�The�acquisition�would�expose�the�acquirer�to�higher�growth�areas�of�a�market.

Geographic�expansion�was�the�second�most�common�justification.�This�occurred�most�prevalently�where�one�of�the�transaction�players�was�international,�although�interstate�acquisition�also�figured�significantly.�

The�third�more�common�reason�was�economies��of�scale.�A�reduction�of�the�number�of�players�in��an�industry�facilitates�efficiencies�and/or�removes��a�certain�level�of�price�competition.�This�justification�occurred�more�readily�in�stable�or�declining�industries.

Overall,�the�reason�for�acquisition�tended�to�vary�by�industry�as�follows:

Reasons for Acquisition by Industry

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Consumer Discretionary

TOTAL

Consumer Staples

ECONOMIES OF SCALE

GEOGRAPHIC DISTRIBUTION

GRAB MARKET

DISTRIBUTION CHANNELS

PRODUCT EXPANS. / DIVERS.

TECHNOLOGY / IP OTHER

Energy & Utilities

Financial

Healthcare

Industrials

IT & Telco

Materials

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Strategic Transactions Australian M&A Review

TRANSACTIONS BY GEOGRAPHY

ACQUIRERSOf�all�mid-market�acquisitions�of�Australian�companies,�25%�were�overseas�acquirers.�Of�those�417�deals,�the�most�significant�country�for�Australian�acquisitions�was�the�USA�with�30%�of�those�mid-market�acquisitions,

�followed�by�the�Europe�(ex�UK�&�France)�with�13%.�These�ratios�correspond�with�other�recent�studies.

44%�of�all�transactions�involved�a�private�company�buyer�and�seller,�45%�involved�one�party�being�publicly�listed�(either�on�the�ASX�or�an�overseas�market),�and�11%�of�the�deals�were�between�two�listed�companies.

Mid-market M&A AcquirersForeign Acquirer Profiles

a

b

a

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cd

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ji

a Australia 75%b Foreign 25%

a UK 11.43%b USA 30.48%c Canada 7.62%d France 5.71%e Other parts of Europe 13.33%f New Zealand 4.76%g China 8.57%h Japan 7.62%i Other Parts of Asia 7.62%j Others 2.86%

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CanadaEight�Canada-based�companies�registered�A$307m�worth�of�transactions�with�Materials�and�Financial�sector�having�the�most�activities.�The�Materials�sector�activities�for�Canada�are�centred�on�mining�industries�while�real�estate�investment�funds�and�insurance�services�represent�most�Financial�acquisition�activities.�Most�notable�is�the�purchase��of�Generation�Healthcare�Management�Pty�Limited,�an�Australian�company�engaged�in�real�estate�investment�trust,�by�Northwest�Healthcare�Properties�Real�Estate�Investment�Trust�for�A$59m.�

UKFive�of�the�12�mid-market�activities�involving�UK-�based�buyers�were�in�the�Industrials�sector.�The�largest�acquisition�was�TR�Pty�Ltd,�an�Australian�audio-visual�equipment�company,�by�VP�Plc�for�A$24m.�The�transaction�is�in�line�with�VP’s�geographic�expansion�overseas.

Two�transactions�were�recorded�under�the�Consumer�Discretionary�sector�in�the�media�entertainment��and�advertising�industries�and�three�activities�for��the�Information�Technology�sector�in�the�search�agency�business.

USAThe�top�sector�for�M&A�activities�in�the�USA�is�Industrials.�USA�has�32�companies�engaged�in�various�transactions�for�mid-market�M&A.�Biggest�acquisition�to�date�for�2016�is�the�A$150m�deal�by�McCormick�and�Company�to�purchase�Gourmet�Garden,�seller�of�a�variety�of�fresh�and�lightly�dried�herb�products.�The�USA�was�the�most�prolific�foreign�acquirer�in�the�Australian�IT�sector�with�6�acquisitions.�

AsiaAsian�companies�had�a�strong�year�for�mid-market�M&A�activities�with�deals�totalling�A$1.37b�from�25�transactions.�The�Industrials�sector�has�the�most�activities�followed�closely�by�the�Consumer�Discretionary�sector�mostly�involving�hotels�and�real�estate�residential�properties.�The�9�Chinese�companies�represent�more�than�a�third�of�the��Asian�buyers.

The�largest�Asian�acquisition�involved�HNA�Aviation�Group�of�China�which�acquired�13%�of�airline�company�Virgin�Australia�for�A$159m.

Japan’s�biggest�acquisition�was�by�Nishio�Rent�All�Co.,�Ltd�who�purchased�80%�of�urban�construction�company�Skyreach�Group�Holdings�Pty�Ltd�for�A$21m.�Five�Japan-based�companies�have�done�mid-market�Australian�transactions.

Singapore�recorded�a�total�of�A$133.6m�in�deal�values�from�5�transactions,�most�notable�of�which�was�the�A$31.6m�acquisition�of�Dalyellup�Shopping�Centre�by�Sim�Lian�from�Woolworths.�

EuropeA�third�of�the�transactions�involving�European�buyers�were�in�the�Industrials�sector�mostly�in�systems�engineering�and�waste�equipment�manufacturing.�The�most�notable�activity�is�the�A$87m�purchase�of�French�company�Suez�of�Perthwaste,�the�leading�waste�management�services�provider�in�Western�Australia.

Another�notable�transaction�is�the�acquisition�of�Drilling�Tools�Australia�Ltd,�a�hammer�manufacturing�company,�by�Finnish�company�Robit�PLC�for�A$66m.

France�was�represented�with�6�companies�while��14�companies�are�from�the�other�parts�of�Europe.

TRANSACTIONS BY GEOGRAPHY (CONTINUED)

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Strategic Transactions Australian M&A Review

SELLERSOver�90%�of�the�businesses�that�were�acquired�by�Australian�businesses�were�Australian,�the�other�10%�being�from�elsewhere�in�the�world.�Private�seller�

companies�comprise�78%�of�mid-market�M&A�activities�while�the�other�22%�were�public�seller�companies.

Of�those�foreign�companies�acquired�by�Australian�companies,�29%�were�US�based�companies�and�23%�were�from�Europe�(ex�UK).

Mid-market M&A Sellers Foreign Sellers Profile

a

b

a

b

c

d

e

a Foreign 9%b Australia 91%

a UK 10.26%b USA& Canada 35.90%c Europe (ex UK) 23.08%d Asia 17.95%e Others 12.82%

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TRANSACTIONS BY GEOGRAPHY (CONTINUED)

AsiaAsian�sellers�varied�as�to�line�of�industry.�Cattle�farming�and�herbal�industries�represent�the�consumer�staples�sector�while�other�activities�were�centred�on�facial�recognition�technology�and�security�services,�hotels�and�clinic�base�franchises�among�others.

Four�of�these�sellers�were�from�China,�most�notable�of�which�is�the�A$23m�purchase�of�herbal�medicines�company�Global�Therapeutics�by�Blackmores�Ltd.

UKTwo�of�the�four�activities�involving�UK-based�sellers�are�centred�on�the�Materials�sector.�The�mining�industry�is�highlighted�with�the�sale�of�a�callide�thermal�coal�mine�and�a�70%�stake�in�the�Foxleigh�Mining�Pty�Ltd�all�by�Anglo�American�Plc.

Other�transactions�were�in�the�IT�sector.�The�sale�of�Technology�Space�Integration,�a�modular�data�centre�company,�acquired�by�Stulz�Australia�Limited�and�Verteda�ltd,�a�company�providing�IT�solutions�in�the�hospitality�industry,�acquired�by�MSL�Solutions.

USASellers�from�the�USA�had�an�overall�transaction�deal�value�of�A$257m�from�10�activities.�Sectors�leading�the�activities�are�the�Industrials�and�Consumer�Discretionary�sectors.

Notable�transactions�include�the�A$107m�purchase�of�IntegraColor�by�Orora�Limited�and�the�sale�of�XOS�Technologies�and�PlayerTek�to�Catapult�Group�International�valued�at�A$84m.

EuropeSeller�companies�from�Europe�have�engaged�in�various�industries�from�software�to�geosciences�services,�online�real�estate�sites,�pizza�food�chains,�and�waste-to-energy�plants.

Two�transactions�were�recorded�in�the�mining�industry.�Portugal’s�Lusorecursos�was�bought�by�Dakota�Minerals�Ltd�for�EUR1.08m�and�Irish�private�mining�company�Wolfhound�Lithium�was�acquired��by�Capital�Mining�in�exchange�for�an�equivalent��65m�shares.

France’s�popular�pizza�chain�Pizza�Sprint�was�acquired�by�Domino’s�Pizza�Enterprises�Limited�for�A$54.15M,�bringing�the�total�number�of�Domino’s�stores�to�330�in�France.�This�was�to�capitalise�on�the�forward�momentum�in�the�European�business�experienced�by�Domino’s.

Mitula�Group�bought�Spain’s�Nuroa�Internet�SL-�a�real�estate�online�search�tool�operator,�for�EUR3m�paid�mostly�in�cash.�The�acquisition�will�boost�Mitula’s�global�exposure�and�service�capability�in��the�real-estate�market,�already�operating�in�more�than�40�countries�with�140�sites.

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Strategic Transactions Australian M&A Review

EARNOUTS�&�DEFERRED�PAYMENT�Earnouts�are�a�negotiation�and�performance�monitoring�tool�used�by�buyers.�This�is�to�incentivise�the�departing�owners�to�maintain�or�improve�throughout�the�transition�phase�of�ownership.�Such�payments�include�a�target�revenue,�profit�or�growth�negotiated�at�a�specified�future�period�of�time�and�ensures�the�continued�interest�of�previous�owner/s.

Typical�earnout�clauses�on�transactions�contain�at�least�some�of�the�following:�proportion�of�deal�contained�on�earnout,�how�much�control�seller�maintains,�time�limits,�interest�on�deferred�payments,�shares�vs�cash,�measured�performance�criteria�(revenue�v�profit�v�other)�and�new�owner�investment�in�acquired�business.

The�Information�Technology�sector�have�the�most�number�of�activities�with�deferred�payments.�This��is�followed�by�the�Industrials�sector�with�Materials�and�Consumer�Discretionary�sectors.

Key�motivator�for�transactions�with�deferred�payment�features�are�those�looking�to�expand�and�diversify�products.�While�acquiring�customers�and�distribution�channels�are�the�key�motivators�for�mid-market�M&A�activities�for�5�transactions.

Deferred�payments�may�last�from�a�year�after�date�of�transaction�completion�up�to�four�years�or�as�may�be�deemed�necessary�by�the�parties�involved.�This�was�the�case�when�PSC�Insurance�Brokers�acquired�Hiscock�Insurance�Brokers�for�just�over�A$2m.�Initial�payment�for�the�purchase�was�A$2m,�with�subsequent�payments�based�on�a�rise-and-fall�

formula�depending�on�the�income�of�Hiscock�for��18�months�after�the�completion�date.

Other�transactions�may�opt�for�the�issuance�of�performance-based�shares�such�as�the�acquisition�of�JCT�Healthcare�Pty�Ltd�and�Jackson�Care�Technologies�Pty�Ltd�by�Xped.�The�deal�follows�a�scheme�of�the�issuance�of�37.5m�performance-based�shares�if�JCT�and�Jackson�Care�will�meet�certain�milestones.�That�is�an�addition�to�the�A$2m�cash�payment,�25m�shares�and�A$0.5m�working�capital.

Deal Value Links to Future Performance

a

b

a Linked to Future Performance 11%b Not Linked to Future Performance 89%

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16

ABOUT STRATEGIC TRANSACTIONS

THE�TRANSACTION�PROCESS� �Strategic�Transactions�ensures�that�throughout�

the�10�stage�transaction�process,�we�work�towards�maximising�our�client’s�sale�value�and�terms.

� �We�start�by�ensuring�that�there�are�minimal�distractions�in�current�operations,�so�that�profitability�and�hence�buyer�valuation��doesn’t�suffer.

� �Then�we�evaluate�all�potential�buyers�–�domestic,�international,�competitor,�value�chain,�possible�new�market�entrants,�to�review�where�the�best�potential�lies.

1

10

2

3

4

5

6

7

8

9

Establish Goals

Understand Buyer

Perspective

Engineer Value

Establish targets for sale value,

exit method and timescale – aligned to personal goals.

Oversee Transition

Recognising & anticipating

market shifts. Improving

performance.

The what, who, why, which,

when & how of buyer mindset.

Prepare for Sale

Develop Market

Strategy

Developing sales materials

& formalise documents.

Appointing advisors while

insuring business continuity.

Engage Buyers

Negotiate & Agree Terms

Negotiate to maximise value & deal terms.

Targeted publicity &

direct buyer meeting.

Drive Due Diligence Process

Complete Sale

Agree sale contract &

other transfers.

Drive to ensure honest,

efficient & timely process.

Maintain goodwill to ensure full

value transfer.

10 Step Sale - Transaction Process

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17

Strategic Transactions Australian M&A Review

1

10

2

3

4

5

6

7

8

9

Establish Goals

Understand Buyer

Perspective

Engineer Value

Establish targets for sale value,

exit method and timescale – aligned to personal goals.

Oversee Transition

Recognising & anticipating

market shifts. Improving

performance.

The what, who, why, which,

when & how of buyer mindset.

Prepare for Sale

Develop Market

Strategy

Developing sales materials

& formalise documents.

Appointing advisors while

insuring business continuity.

Engage Buyers

Negotiate & Agree Terms

Negotiate to maximise value & deal terms.

Targeted publicity &

direct buyer meeting.

Drive Due Diligence Process

Complete Sale

Agree sale contract &

other transfers.

Drive to ensure honest,

efficient & timely process.

Maintain goodwill to ensure full

value transfer.

� �With�those�targets�in�mind�we�create�the�highest�quality�sale�documents,�and�back�those�up�with�concise�yet�meticulous�financial�and�operational�reports.�These�end�up�reducing�the�time�and�stress�of�due�diligence.

� �We�then�approach�buyers,�mindful�of�confidentiality�issues,�present�our�clients’�proposition,�and�through�“competitive�tension”�negotiate�optimal�offers.

� �Finally�at�due�diligence,�we�co-ordinate�the�workflow�from�the�various�lawyers�and�financiers�involved�in�the�transaction�to�achieve�great�results�for�our�clients.

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18

OUR�PURPOSEOur�experience�is�that�medium�sized�private�companies�in�Australia�often�make�sub-optimal�decisions�based�on�a�lack�of�external�strategic�financial�expertise.�Often�the�available�expertise�is�not�arm’s�length�and�comes�from�“experts”�with�vested�interests�in�a�given�outcome.

OUR�GOALS� �To�provide�expertise�to�private�companies��

that�traditionally�was�only�accessible�to��public�companies�with�a�large��management�infrastructure

� �To�professionalise�the�analysis�and��deal-making�process

� �To�rationalise�gut�feel,�instinct�and�ego�issues�that�often�cloud�judgement

� �To�provide�rational,�justifiable�arguments�at��the�negotiating�and�deal�making�stages

ABOUT STRATEGIC TRANSACTIONS (CONTINUED)

OUR�SERVICES� �M&A�Sell�Side�project�management

� �M&A�Buy�Side�project�management

� �Financial�modelling�for�transactions

� �Company�valuations�for�transactions,��compliance�and�litigation

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19

Strategic Transactions Australian M&A Review

Mark Ostryn CEO / Founder - Strategic Transactions��1300 862 511

Mark�Ostryn�is�the�founder�and�CEO�of�Strategic�Transactions.�Mark’s�focus�is�to�transact�the�sale�or�acquisition�of�a�business�at�the�optimal�value�and�terms�for�the�owner.�This�involves�detailed�market�search,�financial�decision�support�and�project�management�throughout�the�transaction.

CONTRIBUTORS

Divesh Bidhuri Technology & Health Analyst – Strategic Transactions��1300 862 511

Divesh�Bidhuri�is�focussed�on�health�&�medical�products�as�well�as�strategic�partners�&�alliances.�Divesh�graduated�from�the�University�of�Nottingham�and�is�now�focussed�on�obtaining�his�Professional�Accounting�Masters�from�UTS.�He�is�also�an�accomplished�athlete,�debater�and�dancer.

Neethika Sajith Food & Beverage Analyst – Strategic Transactions��1300 862 511

Neethika�Sajith�is�focussed�on�food�&�beverage�markets�as�well�as�overall�marketing.�Neethika�has�a�Diploma�in�Financial�Planning�and�will�shortly�graduate�in�Business��with�an�IT�&�Finance�Specialisation.�She�is�an�avid�sportsperson�and�has�a�special�interest�in�the�care�of�the�destitute.

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Level 3, 50 York St, Sydney NSW [email protected] | 1300 862 511strategictransactions.com.au

IMPORTANT�DISCLAIMER

This�transaction�analysis�has�been�compiled�using�proprietary�news�feeds,�stock�exchange�notices,�press�releases,�other�third�party�data�services�and�Strategic�Transactions�interaction�with�buyers�and�sellers.�Our�analysis�has�produced�some�insights�that�inform�our�clients�who�wish�to�maximise�the�value�of�their�buy�or�sell�transaction.

Despite�our�diligence�in�compiling�this�information,�we�cannot�be�responsible�for�its�accuracy,�or�how�it�is�used.��In�addition,�given�the�paucity�of�data�available�for�private�transactions�in�Australia�this�analysis�should�not�be�seen�as�a�substitute�for�a�rigorous�review�of�any�potential�opportunity�you�may�be�considering.�Readers�should�seek�appropriate�professional�advice� for� further�analysis�of�any�opportunity�under�consideration.�Additional�clarification�and�detail�may�be�sought�on�any�aspect�of�this�report�by�contacting�us�on�1300�862�511.