M&A deals soar by 70%, but SME deals hindered by lack of confidence

Deal-making at the big end of town isn’t flowing through to small and medium-sized enterprises, with poor confidence hindering takeovers and equity injections in the SME space.

Figures from Thomson Reuters show Australia was the fourth-largest market for mergers and acquisitions so far this year, behind the United States, United Kingdom and China. Deals involving Australian companies totalled $US142.8 billion for the nine months to September, just under the record reached in 2007.

While the result is surprisingly strong, and underpinned by deals in the resources sector such as BHP Billiton’s $US12 billion purchase of Petrohawk Energy Corp, Thomson Reuters says the number of deals was actually lower.

Greg Will, PricewaterhouseCoopers partner in Sydney, tells SmartCompany that there are plenty of private equity firms coming back to the market but there are “not a lot of good businesses out there for sale.”

“Valuations are a little bit soft at the moment. Most business-owners don’t feel they will get bang for their buck so they’re hanging out until prices get better.”

Will adds that willing sellers are taking their time when negotiating with private equity, seeking to ensure the incoming board and management are well-suited to the business, particularly if the owners intend to remain a shareholder.

Still, Will says there is plenty of activity generated by businesses that are put up for sale due to pressure from the banks or the tax office.

“Our feedback is that most insolvency practices are booming at the moment,” Will says.

“We hear that there’s a lot of activity; the ATO is getting a lot tougher in terms of outstanding balances, and some banks are saying they can’t continue to support a business when it breaches its covenants.”

Will says a lack of confidence is behind the weakness in activity, and is optimistic that things will pick up.

“I’m still optimistic that indicators within Australia market are still very strong,” Will says.

“It’s the confidence factor: people don’t want to take risks and people are waiting, but once confidence improves things will pick up.”

The Thomson Reuters figures also show that M&A slowed by 23% in the third quarter, from the previous quarter, as the European debt crisis, sharemarket volatility and the US budget near-miss weighed on demand