There is a lot involved in buying or selling a business – We do not doubt that you will have 101 questions if you are looking at undertaking a mergers and acquisitions deal. This is why we have put together the following Q&A on the basics of the mergers and acquisitions process in Australia to answer some of those burning questions…
What is the difference between mergers and acquisitions?
Generally speaking, acquisition can be described as a transaction, where one firm takes over another. Whereas, a merger refers to both companies mutually combining to form a whole new entity. Every mergers and acquisitions process in Australia can be so unique and different with its own reasons for buying or selling, hence the use of these two terms coincide.
What are the different types of business mergers?
There are a few different classifications of business mergers, including:
- Horizontal: a horizontal merger involves actual/potential suppliers of substitutable goods and services.
- Vertical: a vertical merger entails the companies operating at different functional levels of the corresponding vertical supply chain.
- Conglomerate: this form of merger is the union of firms involved in distinct unrelated business activities or operating in different geographic areas.
What are the most common ways to acquire a private company?
The most common ways to acquire a private company are to:
- Asset purchase: the buyer acquires some or all identified assets and laibilities of a company, not the company itself.
- Purchase of shares or other ownership interests: in a share purchase, the buyer purchases shares in the company directly from the company’s shareholders. Thus, this essentially gives the buyer control over all business assets.
However, for companies operating enterprises as the trustee of a trust, the trustee company has no beneficial ownership of the trust’s assets. For this reason, the purchase of the trustee company’s shares is worthless in and of itself. An acquisition in this context often entails:
- For discretionary trusts: an asset acquisition.
- For unit trusts: an asset acquisition or an acquisition of the shares in the trustee company, along with the units.
What rules are applicable to Mergers and Acquisitions processes in Australia?
In short, different rules apply for different Australian companies, and further rules apply for foreign buyers and different industries.
Regulation of private and public M&A transactions in Australia:
The acquisition of privately-owned companies is considered unregulated M&A transactions. Therefore, they are outside the jurisdiction of the stock exchange listing rules and only in certain aspects governed by the Corporations Act 2001. Contract law principles predominantly govern the rights and obligations of parties in private transactions. In addition, the share or asset sale agreement entered into by both parties will be a principal document.
Mergers and acquisitions of publicly-owned companies are regulated by:
- the Corporations Act 2001 (Cth) and corresponding regulations
- Policy issues by the Australian Securities and Investments Comission (‘ASIC’)
- the listing rules of the Australian Securities Exchange (‘ASX’)
- the Competition and Consumer Act 2010 (Cth), which prohibits some transactions that may heavily lessen competition in a market in Australia
- the Income Tax Assessment Act 1977 (Cth)
Foreign Buyer Rules:
Foreign investors are subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth), which regulates acquisitions of Australian businesses and assets by foreign investors.
Industry Specific Rules:
Similarly, in Australia, different sectors are subject to industry-specific rules applicable to M&A transactions. Some of these include:
- Banking – Banking Act 1959 (Cth)
- Energy & Resources – state and territory electricity, mining and gas legislation
- Financial Sector – Financial Sector (Shareholdings) Act 1988 (Cth)
- Insurance Acquisitions Takeovers Act 1991 (Cth)
How do I retain key personnel in the mergers and acquisition process in Australia?
A ‘brain drain’ has the ability to substantially sabotage a deal’s success. Equity incentives have long been utilised by dealmakers to motivate and retain key executives within an acquired company. However, it is also critical to include members of the team who work just outside of senior management, as well as other crucial employees with specific skills and expertise. The idea here is to create an incentive package that motivates them and connects them with the company’s strategic goals without unduly diminishing the ownership pool. However, the most promising incentives aren’t always monetary; they could be flexible benefits or a long-term incentive strategy.
Another thing to consider is having the correct staff and back-office setup. Importantly, you should be working to free up your in-house employees to focus on value generation. Therefore, automating or outsourcing certain repetitive and low-value processes can help you achieve this.
How do I ensure operating model effectiveness?
Undoubtedly, in most post-deal situations, one of the most difficult – if not the most difficult – issues is integrating the purchase into the current business structure in a cost-effective manner. The effectiveness of the operating model is a key issue here. Examine how you may improve your supply chain and business structure to ensure increased functional efficiency while adhering to applicable rules and regulations.
Without a doubt, there may be possibilities to increase capabilities by centralising certain functions, including finance or procurement. In particular, in some countries, you can even secure decisions that indicate your transfer pricing is correct to lock in the benefits of that form of reorganisation. When operating model effectiveness programmes are integrated with larger commercial efficiency initiatives, they tend to provide the maximum value for a business.
Are you looking for your next business opportunity? BUSINESSNAV can assist private enterprises in the merge and acquisition of businesses across a broad range of industries. We access available databases to help identify potential mergers and acquisitions targets based on your business objectives.
Get in touch with one of our Business Advisors today to assist you with the Mergers and Acquisitions process in Australia. Simply contact us using the form below: