The current market conditions in Australia are creating a substantial appetite for Accelerated M&A transactions.
What is accelerated M&A?
Accelerated M&A differs from traditional M&A in the fact that the acquisition target is a business facing financial distress. There are many stages of financial distress, ranging from a business simply concerned about its cash flow position through to a company facing formal insolvency proceedings. The level of distress a company faces, will typically guide the timeline of an Accelerated M&A process.
The abundance of willing buyers with excess cash looking to capitalise on COVID-19 affected businesses is creating significant demand for pre-insolvency solutions, resulting in more alternatives for companies facing financial distress, including Accelerated M&A.
Our experts have created a guide to outline the comparisons between an Accelerated M&A process and a Traditional M&A process across the key deal drivers including timeline, deal type, the buyer pool, profitability and contracts and licences.
Key deal drivers are often similar in accelerated and traditional M&A, but there are differences between how these drivers affect the deal.
|
Key deal drivers |
Accelerated M&A |
Traditional M&A |
| Timeline | An accelerated process will typically feature a business that has an imminent threat of financial distress and a significantly shortened transaction timeline (weeks) is required to mitigate insolvency. | A traditional process will usually not have any imminent threat of insolvency, therefore both sides of the transaction will ensure they complete all aspects of a thorough process taking a number of months to complete a deal. |
| Deal type | Historically, Accelerated processes have more often utilised asset purchase deal structures that can be purchased free of any pre-existing debts owed by the distressed entity. | Traditional processes can utilise an array of deal structures including both asset and share deal types, usually substantial time can be spent finalising the best type of deal structure for both parties. |
| The buyer pool | Accelerated M&A requires strategic consideration of the potential buyer pool. Valuable time and resources cannot be wasted on interested parties that can’t complete a deal in the accelerated timeline or are uncomfortable with the risks associated with acquiring a distressed business. | Within traditional processes, significant time will be taken by the seller to understand and reach a much broader buyer pool in order to ensure all potential opportunities are explored. |
| Profitability | In distressed scenarios, current levels of profitability are not of paramount concern to a potential purchaser however demonstrating the future profitability and potential of the business model is key to attracting bidders and defining value. |
Maintaining control over key profitability KPIs is integral to the traditional process which can often involve an EBITDA multiple to value the target business. |
| Contracts and licenses | In an accelerated process, the focus will be placed on securing the transfer of key contracts or licenses material to business operations. Continuity of these items can often be paramount in the success of AMA transactions to minimise operational disruption. | In traditional processes and without the threat of limited working capital that can be seen in distressed situations, substantial time can be taken in validating, negotiating and transferring all the associated contracts & licenses a business may hold. |
| Due dilligence and warranties | In theme with the accelerated timeline, throughout the due diligence process there is a key focus from all parties and advisors on items that are materially crucial to the deal and its completion. | Extensive financial, taxation and legal due diligence will be done on both sides of the transaction and will often take substantial time to complete. |
| Legal and regulartory |
An accelerated process will clearly outline the distressed position of the target, and as such the level of negotiation between the parties is limited. Most legal time will be spent structuring the transaction through to the execution phase and being mindful of Insolvency laws. |
The majority of traditional processes will have two parties in relatively strong positions aiming to both seek a mutually agreeable deal, which can take time to develop and evolve to a final exchange. As such, significant time is spent working with lawyers to work through negotiations between the parties. |
In our Accelerated M&A Guide, we provide the above table and our outlook for accelerated M&A over the next few years. The abundance of willing buyers with excess cash looking to capitalise on COVID-19 effected businesses will create significant demand for pre-insolvency solutions, which in turn will result in more alternatives for companies facing financial distress. Download the guide for more in depth discussion including:
- Opportunities within the post pandemic environment
- Key considerations for sellers
- Key considerations for buyers
For more information on the outlook for Accelerated M&A please contact our Special Situations Advisory team.