We are happy to present the quarterly instalment of our mid-market M&A overview. The analysis focuses on the current quarter intending to provide you with a brief overview of recent mid-market M&A activity.
Overview
The number of transactions in Q1 FY2024 decreased slightly from the previous quarter and decreased from the same quarter in the prior year.
The average deal size decreased from $33.5 million in Q4 FY2023 to $17.6 million in Q1 FY2024, a decrease of 47.5%. Over the last 12 months, the average deal size decreased from $31.8 million to $27.1 million, a decline of 14.8% from the average deal size for the prior 12 months.
Number of transactions and disclosed average transaction value by quarter
Sector
Industrials (23%), information technology (17%), and consumer discretionary (15%) were the most active sectors during the quarter, followed by financials (11%) and consumer staples (11%). These top five sectors represented 78% of all completed transactions in the quarter.
M&A activity in the industrials sector continued to be strong and increased from Q4 FY2023, from 27 transactions to 29 in this quarter. There was also significant M&A activity in the IT sector despite a drop off in the number of transactions from 30 last quarter to 21 in Q1 FY2024.
Top sector activity and number of transactions
Geography
For transactions where a buyer was disclosed, overseas acquirers represented 22% of total transactions. The United States was the largest acquirers of Australian companies, representing 33% of overseas buyers in the quarter. The United Kingdom also actively acquired Australian companies, representing 30% of the total transactions.
The below graph represents the country split of the overseas transactions throughout the quarter, excluding Australian acquirers.
Overseas Transactions
EBITDA multiples
The EBITDA multiples of the Nexia MM Index (see below regarding methodology and limitations) has been compared to relative ASX indices in the graph.
The Nexia MM Index compared to relative ASX listed companies
The ASX Emerging Companies index decreased by 19% and the ASX All Ordinaries index increased by less than 1% from the prior quarter. The Nexia MM decreased by 36% 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 capitalisation multiple of some of the transactions.
Although the same limitations apply to this analysis as the overall index, the study bears 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.
Snapshot of EBITDAx distribution by sector
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 October 2020 to 30 September 2023. Transactions, where no value was disclosed, are included in the volume data with the implicit assumption that these would relate to smaller transactions and therefore meet the criteria.
Overall, 1,843 transactions are included within the data analysed. Transaction values were disclosed for 728 (40%) of these transactions with an aggregated transaction value of $21.29 billion. 65 of these transactions (9%) 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 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 several 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.
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 reflects a portfolio interest.
The range in the identified EBITDA multiples is significant at 0.2x to 37.8x for FY2021, 0.2x to 50.3x for FY2022 and 1.1x to 30.5x.for FY2023. The current range for FY2024 is 1.8x to 3.1x.
