As the Australian business landscape continues to evolve, there is a notable shift in how businesses navigate challenges and capitalise on emerging opportunities. The latter half of 2024 promises to be a period of significant activity, driven by various economic factors. Farzin Hesari, CEO of LINK Australia, provides insights into the key trends that will shape the market in the coming months.
Interest rates and inflation have become more than just headlines; they are now critical components of the country’s business environment. “We’ve seen interest rates and inflation become deeply embedded in the decision-making process for both buyers and sellers,” says Hesari. For many, these factors have introduced a level of uncertainty that must be navigated carefully. While smaller deals have felt the pinch more acutely, the overall sentiment remains positive.
Hesari notes, “Businesses with strong cash flows are in a prime position to capitalise on acquisition opportunities as their competitors struggle with rising costs.” This resilience among certain businesses has created a favourable environment for growth through acquisitions. As a result, more business owners are viewing acquisition as a strategic pathway to accelerate growth in the near term.
Private equity firms are increasingly active in the small business M&A space, drawn to companies with scalable growth potential and dependable cash flows. According to Hesari, “We’re seeing a notable increase in private equity interest in small to medium enterprises, particularly those that can offer synergistic value or fill critical gaps in a portfolio.”
Strategic buyers are also playing a key role, seeking out businesses that align with their long-term objectives. These buyers are particularly focused on companies that can offer synergies or complement their existing operations. As a result, there’s a noticeable shift in buyer behaviour, with a greater emphasis on strategic acquisitions.
Economic uncertainties have made valuation a central focus in deal negotiations. “Reaching consensus on valuations has become more crucial than ever,” Hesari explains. To bridge the gap between buyer and seller expectations, earn-outs and contingent payments are becoming more common. These deal structures allow both parties to share in the future success of the business, aligning incentives and reducing risk.
Hesari adds, “We’ve observed a slight adjustment in multiples during the first half of the year, with a stronger emphasis on high-quality assets.” This trend underscores the importance of quality over quantity in the current market, with buyers prioritising businesses that can demonstrate resilience and growth potential.
Looking ahead, the small business M&A landscape is poised for growth. “We expect to see a surge in transaction volumes and stronger multiples as businesses and buyers alike seize the opportunities presented by favourable macroeconomic conditions and sector-specific trends,” Hesari predicts. “At LINK Business Group, we are leading the way in Australia, ensuring that our clients are well-positioned to succeed in this vibrant market.”
As the second half of 2024 unfolds, business owners and buyers will need to stay agile, adapting to the rapidly changing environment while remaining focused on long-term growth. With the right strategies in place, the coming months offer tremendous potential for those ready to seize the moment.
