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The Australian market has shown remarkable resilience even in the face of the ongoing supply chain disruptions, labour shortages, inflation concerns, and a volatile global market suffering the double whammy of a pandemic and the harshest conflict in Europe since the Second World War.

The Australian Bureau of Statistics recorded a 0.8% growth rate for the Australian economy during the March quarter of 2022 and 3.3% over the past year. Private equity has been a major driver of Australia’s growth. The Reserve Bank of Australia’s Statement on Monetary Policy (May 2022) claims that “a strong expansion in the Australian economy is underway” by growth in private consumption and investment.

According to investor and private equity expert Darren Herft, while small and medium enterprises (SME’S) have dominated the Australian landscape for a long time, an increasingly competitive market could present a challenge to their position. 

“In the long term, only the fittest businesses will survive,” says Darren Herft. 

He believes that Mergers and Acquisitions can be a useful tool for businesses looking to expand. 

“Businesses can potentially increase their market share, have better access to competent workers, diversify risk and implement their growth strategy faster by using Mergers and Acquisitions to spur their growth,” claims Darren Herft. 

He thinks that while larger players have been utilizing mergers and acquisitions for expansion for long, local SME’S can also avail of private Merger and Acquisitions by targeting private companies. 

Private Mergers and Acquisitions are only governed by the Corporations Act 2001 and are less regulated than public Mergers and Acquisitions

While private Merger and Acquisition transactions commonly run between two to three months, Darren Herft cautions private equity players to be aware that some Merger and Acquisitions can be potentially subject to some, or all of conditions such as – third-party consents, specific sector regulations, shareholders, or board approvals, as well as Foreign Investment Review Board (FIRB) clearance and the approval of Australian Competition and Consumer Commission (ACCC). 

Darren Herft also advises both buyers and sellers to practice due diligence when it comes to Mergers and Acquisitions in the private sector. 

“Buyers must follow due diligence processes, financially as well as legally,” says Herft. 

Not only is it important to confirm title to the shares in a company or assets in a business, but also its litigation, bankruptcy status, compliance, legal structure, and terms of material contracts among other things. 

Furthermore, buyers must confirm the veracity of financial forecasts, financial responsibilities, current financial positioning, and historical financial results of the seller prior to committing to the sale. 

“Usually, the scope of the due diligence process is dictated by the nature of the business. Those playing in more highly regulated arenas are likely to provide due diligence reports,” says Herft. 

He still advises all buyers, regardless of the size, scope, and nature of the business to conduct their own due diligence process before a Merger and Acquisition.

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