Whether you own a medium-sized business or are looking to buy one — you’ve come to the right place. This comprehensive guide will walk you through the process of finding, evaluating, and purchasing a mid-sized business in the Australian market. 

Buying or selling a company is a big decision that comes with significant financial and legal implications. From understanding the acquisition landscape to navigating local laws, we’ll provide you with the knowledge and tools you need to make informed decisions and successfully complete a business acquisition.

Understanding the acquisition process in Australia

Have you ever wondered how to acquire a business in Australia? Well, there are several key steps starting with identifying potential targets to finalising the purchase. 

If it’s a mid-sized business that you are after, meaning businesses with annual revenue between AUD 10 million and AUD 500 million, the acquisition process can be more complex than for smaller enterprises.

First, you’ll need to do market research and identify suitable targets. Once you have found a potential business to acquire, you, as the buyer, will conduct due diligence. This involves a thorough examination of the company’s financial, operational, and legal aspects. This is followed by negotiations, structuring the deal, and securing financing. The final stages include drafting and signing legal agreements, transferring ownership, and integrating the acquired business into your existing operations.

In Australia, acquisitions are subject to various regulations, including the Corporations Act 2001 and the Competition and Consumer Act 2010. Depending on the size and nature of the deal, approval from the Australian Competition and Consumer Commission (ACCC) or the Foreign Investment Review Board (FIRB) may be required.

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Why buy a mid-sized business?

There are many reasons to acquire a mid-sized business.

• Established market presence: Mid-sized businesses often have a solid customer base and brand recognition, providing a strong foundation for growth.
• Operational infrastructure: These companies typically have established systems, processes, and experienced staff in place, reducing the need for extensive setup costs.
• Immediate cash flow: Unlike startups, mid-sized businesses usually generate consistent revenue, providing immediate returns on investment.
• Growth potential: Many mid-sized businesses have untapped potential for expansion, either through market penetration or diversification.
• Industry expertise: Acquiring a mid-sized business allows buyers to quickly gain industry-specific knowledge and expertise.

In Australia, certain sectors are particularly attractive for mid-market acquisitions. These include technology, healthcare, professional services, and advanced manufacturing, which are priority sectors for the Australian government. 

How to find the right business to acquire

If you are reading this guide, you may already have a business you want to buy in mind. However, if you haven’t found one yet, then research will be the crucial first step. Of course, you don’t need to do the work alone — there are several ways to go about finding a company for acquisition. 

Engage business brokers

Specialised M&A advisors and business brokers can provide access to off-market opportunities and valuable industry insights.

Use online marketplaces

Platforms like Resolve and BizBuySell list businesses for sale, including mid-sized enterprises.

Network within industry associations

Attend industry events and join professional associations to identify potential acquisition targets.

Leverage data services

Companies like DCA IncNet offer databases of Australian SMEs, which can be useful for identifying potential targets.

Conduct market research

In addition to finding a specific business, you need to analyse industry trends, market reports, and financial data to identify sectors with growth potential.

When evaluating potential targets, consider factors such as:

• Financial performance and growth trajectory
• Market position and competitive advantage
• Quality of management and key personnel
• Synergies with your existing business (if applicable)
• Geographic location and expansion potential

It’s crucial to align the acquisition target with your strategic goals and ensure there’s a cultural fit between the organisations.

Steps to evaluate a business before buying

Thorough due diligence is critical when evaluating a mid-sized business for acquisition in Australia. Here are some critical steps to follow. 

1. Financial analysis

Start by diving deep into the company’s financial health. This step is crucial for understanding the business’s profitability and potential for growth. 

• Review audited financial statements for the past 3-5 years.
• Analyse cash flow, profitability trends, and working capital requirements.
• Assess the quality of earnings and identify any one-time or non-recurring items.
• Evaluate the company’s debt structure and financial obligations.

2. Operational assessment

Next, examine the company’s operations to understand how it functions and identify areas for improvement.

• Examine the company’s business model and operational efficiency.
• Review key contracts with customers, suppliers, and partners.
• Assess the condition and value of physical assets and inventory.
• Evaluate the company’s technology infrastructure and intellectual property.

3. Legal and compliance review

Protect yourself from potential legal issues by conducting a comprehensive legal and compliance review.

• Verify all necessary licences and permits are in place and current.
• Review any ongoing or potential legal disputes.
• Ensure compliance with relevant industry regulations and standards.
• Examine employee contracts and workplace policies.

4. Market and competitive analysis

Understand the company’s position in the market to gauge its future potential.

• Assess the company’s market position and growth potential.
• Analyse the competitive landscape and industry trends.
• Evaluate customer relationships and satisfaction levels.
• Identify potential risks and opportunities in the market.

5. Human resources evaluation

Finally, assess the company’s most valuable asset — its people.

• Assess the quality and stability of the management team.
• Review the organisational structure and key personnel.
• Evaluate employee turnover rates and satisfaction.
• Identify any potential cultural integration challenges.

During this process, you may need to engage several industry experts, such as accountants and lawyers, to ensure a comprehensive evaluation. 

How to finance the acquisition

Once you have decided which company to acquire and confirmed their viability, financing takes centre stage. In Australia, there are various financing options for business acquisitions. 

Bank loans

A bank loan is like getting a mortgage but for buying a business instead of a house. Big Australian banks offer special loans designed for purchasing businesses. You borrow money from the bank and agree to pay it back over time with interest. The bank will want to see that the business you’re buying is healthy and can generate enough money to repay the loan.

Private equity

Think of private equity as bringing in a business partner with deep pockets. Private equity firms invest money in exchange for partial ownership of your company. They’re particularly interested in businesses that have potential for significant growth. This option is good if you need a lot of money and are okay with giving up some control of your business.

Vendor financing

Vendor financing is when the person selling the business agrees to let you pay for part of it over time, almost like an instalment plan. For example, you might pay 70% of the price upfront, and the seller lets you pay the remaining 30% over the next few years. This can make it easier to afford the purchase, but the seller might charge interest on the deferred amount.

Mezzanine financing

This is a mix between a loan and an investment. Mezzanine financing is riskier for the lender than a regular bank loan, so it usually comes with higher interest rates. However, it’s more flexible — for instance, you might be able to delay repayments until your business is more established. Sometimes, the lender also gets the option to convert their loan into partial ownership of your company.

Government grants and incentives

The Australian government offers various programs to help businesses grow, including support for acquisitions in certain industries. These might include grants (money you don’t have to pay back), tax breaks, or other forms of assistance. 

Asset-based lending

Asset-based lending is like pawning the assets of the business you’re buying to get a loan. The lender gives you money based on the value of things like inventory, equipment, or accounts receivable. If you can’t repay the loan, the lender can take these assets. This type of financing works well when you’re buying a business with a lot of valuable physical assets.

When choosing a financing option, consider factors such as:

• The size of the acquisition
• Your current financial position
• The target company’s cash flow and asset base
• Your risk tolerance and desired level of control

You may want to talk to a financial advisor to determine the most suitable financing structure for your specific situation.

Legal and tax considerations when acquiring a business

Money is not the only big consideration when it comes to business acquisition. Legal aspects are equally, if not more, crucial. 

Business structure

First, you need to make a fundamental choice between an asset sale and a share sale. An asset sale involves purchasing specific assets of the business, while a share sale entails buying the company’s shares. Each option carries different legal and tax consequences. 

The structure you choose can affect liability transfer, tax outcomes, and the overall complexity of the transaction. It’s crucial to analyse these factors thoroughly to determine the most advantageous approach for your specific situation.

Contracts and intellectual property

When acquiring a business, you will need to comprehensively review existing contracts, licences, and permits. You’ll also need to pay attention to Intellectual property rights also require careful attention, as they often represent significant value in modern businesses. 

It’s important to verify that all IP rights are properly transferred or licensed as part of the acquisition. Additionally, considering non-compete agreements with key personnel can help protect the acquired business’s value and prevent potential competition from former owners or employees.

Tax implications

The tax consequences of a business acquisition can be substantial and complex. 

• Capital Gains Tax (CGT) considerations affect both the buyer and seller, and understanding these implications will impact how you structure the deal. 
• Goods and Services Tax (GST) may apply to the sale of business assets, adding another layer of complexity. 
• Stamp duty, which varies by state, can represent a significant cost, especially for large transactions. 

On the positive side, you may see potential tax benefits from the depreciation of acquired assets in the long term. Careful planning and expert tax advice are essential to optimise the tax position for both buyers and sellers. 

Employee considerations

When transferring employees in a business acquisition, you’ll need to consider various legal and practical aspects. For one, you must ensure compliance with the Fair Work Act 2009 and relevant awards to avoid potential disputes or liabilities. 

In some cases, the acquisition may involve HR redundancies or restructuring. These processes must follow Australian employment laws and be done with sensitivity to maintain employee morale and productivity.

Regulatory compliance

Depending on the nature and size of the acquisition, you may also need to seek regulatory approvals. For example, the ACCC must approve any transactions that could substantially lessen competition. Meanwhile, foreign investors acquiring significant interests in Australian businesses often need approval from the Foreign Investment Review Board (FIRB).

Additionally, your specific industry may have unique regulations and licensing requirements during acquisitions. 

Given the complexity of these legal and tax considerations, it’s essential to engage experienced legal and tax professionals early in the acquisition process. 

Finalising the acquisition

Once you have successfully navigated the legal and tax implications of the acquisition, it is time to get down to business. Here are the steps you should follow. 

1. Negotiating the sale

The first step is to reach an agreement on the final terms of the deal, including price, payment structure, and key provisions.

• Agree on the final purchase price and payment terms.
• Determine the allocation of assets and liabilities.
• Negotiate key terms such as warranties, indemnities, and earn-out provisions.

2. Drafting agreements

Next, you’ll need to prepare and review the legal documents that will govern the transaction. Typically, you’ll need a legal advisor for this step. 

• Prepare a detailed sale and purchase agreement
• Include all necessary schedules and disclosure documents.
• Have legal professionals review and finalise all contracts.

3. Due diligence completion

In this step, you can address any remaining issues uncovered during the due diligence process.

• Address any outstanding issues identified during due diligence.
• Obtain necessary third-party consents (e.g., landlords, key customers).

4. Settlement process

This step involves the actual transfer of ownership and funds.

• Arrange for transfer of funds.
• Execute all required legal documents.
• Transfer ownership of assets or shares as agreed.

5. Closing the deal

Now, you are ready for the final review and completion of the transaction.

• Conduct a final review of all documentation.
• Ensure all conditions precedent have been met.
• Complete the transaction and transfer of ownership.

6. Post-closing actions

These are the immediate steps taken after the deal is closed to ensure a smooth transition.

• Update business registrations and licences.
• Notify relevant stakeholders (employees, customers, suppliers).
• Begin integration planning and execution. 

Throughout this process, clear communication and documentation are crucial. Engage professional lawyers and accountants to ensure all legal and financial aspects are properly addressed.

Post-acquisition tips: Managing your new business

The acquisition isn’t really done once you’ve finalised the paperwork and money changes hands. On the contrary, this is the easy part. 

The first 100 days post-acquisition are critical. Focus on quick wins to build momentum while laying the groundwork for long-term success. 

Integration planning

Start by developing a detailed integration plan that covers all aspects of the business, including operations, finance, human resources, and IT. This plan should set clear timelines and milestones for the integration process to maintain momentum and track progress. 

Once the plan is ready, assign specific responsibilities to team members and establish a dedicated integration team to oversee the process. This structured approach will help ensure that all areas are addressed comprehensively and efficiently.

Communication strategy

Effective communication is crucial during the post-acquisition phase. Develop a clear communication plan for employees, customers, and suppliers to keep them informed and engaged. 

Your strategy should address any concerns and uncertainties promptly and transparently to build trust and confidence. Plus, make sure to emphasise the benefits of the acquisition and share the vision for the future to align everyone with the new direction.

Operational alignment

To maximise efficiency, identify and implement best practices from both organisations. Streamline processes and systems to eliminate redundancies and improve overall performance. 

It might be worthwhile to invest in necessary technology upgrades or integrations to support these improvements. This alignment will help create a more cohesive and efficient organisation.

Cultural integration

Cultural differences can pose significant challenges during an acquisition. Assess these differences early on and address them proactively. 

After an acquisition, it will be critical to promote a unified company culture while respecting existing values from both organisations. For this, consider implementing change management strategies to facilitate a smooth transition and foster a positive work environment.

Financial management

Establish clear financial reporting and control systems to monitor the financial health of the newly acquired business. Keep a close eye on key performance indicators to ensure that financial goals are being met.

Talent retention and development

People can make or break your acquisition. Identify key personnel who are critical to the success of the business and take steps to retain them. 

For example, you might develop training programs to align employees’ skills with new business objectives, ensuring they are equipped to contribute effectively. You can also create opportunities for career growth and development to motivate staff and encourage long-term commitment.

Strategic planning

Review and update the business plan to reflect post-acquisition goals, setting new targets for growth and profitability. During this process, identify opportunities for expansion or diversification that align with the strategic vision of the company. This forward-thinking approach will help guide decision-making and drive success in the long term.

FAQ

How can I find a business to acquire?

There are various ways to find a business to acquire. Consider engaging business brokers, searching online marketplaces, networking within industry associations, and using data services that provide information on Australian SMEs. 

No matter which route you choose, it’s important to conduct thorough market research and align potential targets with your strategic goals.

What tax deductions can I claim when acquiring a business?

When acquiring a business, you may be able to claim deductions for expenses related to the purchase, such as professional fees for legal and accounting services. Additionally, you can potentially claim depreciation on acquired assets. 

However, tax implications vary based on the structure of the deal, so it’s crucial to consult with a tax professional for specific advice.

Final thoughts

Acquiring a mid-sized business in Australia can be a complex but rewarding process. By understanding the acquisition landscape, conducting thorough due diligence, and carefully planning the integration, you can position yourself for success. 

Remember that each acquisition is unique, and it’s crucial to seek professional advice tailored to your specific situation. For personalised guidance and to ensure business tax compliance, reach out to Lawpath. We are here to help!