RBA Paper Reveals Types of Australian Businesses Most Likely to Be Acquired

The RBA paper reveals that medium-sized businesses with a turnover between $10 million and $50 million are 1.4 times more likely to be acquisition targets compared to smaller firms with a turnover of less than $1 million. Additionally, businesses with a turnover between $5 million and $10 million are also highly likely to be targeted. This trend suggests that acquirers are looking for businesses that have achieved a certain level of scale and profitability, yet are not so large that integration would pose significant challenges. Medium-sized firms often have established processes and infrastructure, making them attractive for seamless integration. Furthermore, these businesses are seen as having substantial growth potential, which aligns with acquirers' strategies to expand their market presence and capabilities.

Interestingly, the paper finds that acquirers tend to favor firms that are highly profitable but unproductive. The researchers theorize that these businesses may benefit from reorganization and synergies, allowing the acquiring firm to unlock additional value. This suggests that acquirers are not just looking for businesses with strong financials, but also those with potential for improvement and growth. By acquiring these firms, acquirers may be able to streamline operations, cut costs, and drive revenue growth through synergies with their existing businesses. This approach allows acquirers to enhance the productivity of the target firms while leveraging their profitability, creating a win-win scenario.

The paper also highlights that firms with a small headcount (fewer than 20 employees) or very large firms (500+ employees) are less likely to be targeted. This suggests that acquirers are looking for businesses with a certain level of complexity and scale, but not so large that integration would be overly challenging. Small firms may also lack the infrastructure and processes that larger acquirers are looking for. Acquirers may prefer businesses that have already established a certain level of maturity and operational efficiency, making them easier to integrate and manage post-acquisition. Very large firms, on the other hand, may present integration challenges and may not offer the same level of growth potential as medium-sized businesses.

Each additional patent held by a firm increases the odds of it becoming a target by 3%, according to the RBA paper. This highlights the importance of intellectual property in acquisitions, particularly in industries where innovation and proprietary technology are key competitive advantages. Firms with a strong patent portfolio may be seen as having a sustainable moat against competitors, making them attractive acquisition targets. Acquirers may be looking to acquire these firms to gain access to their proprietary technology, intellectual property, and innovative capabilities, which can help them stay ahead of the competition and drive long-term growth. This emphasis on intellectual property underscores the value of innovation and R&D in the acquisition landscape.

The research also reveals that serial acquisitions are common, with a small number of acquiring firms undertaking a large portion of M&A activity. This suggests that acquirers are looking to build scale and synergies across a portfolio of businesses, rather than making one-off acquisitions. For businesses that may be acquisition targets, this highlights the importance of considering how they could fit into a larger portfolio and contribute to overall growth and value creation. Acquirers may be looking for businesses that can complement their existing portfolio, providing additional capabilities, market access, or growth opportunities. This approach allows acquirers to create a diversified and robust business ecosystem, enhancing their competitive position in the market.

For Australian mid-market decision-makers, the RBA paper underscores the value of maintaining robust business data and intellectual property management. Firms in the $10 million to $50 million turnover range, with a focus on profitability and innovation, are particularly attractive to acquirers. By unifying business data into a centralized AWS database, companies can gain better insights into their operations, identify areas for improvement, and demonstrate their value to potential acquirers. This strategic approach not only enhances operational efficiency but also positions businesses as compelling acquisition targets in a competitive M&A landscape. Moreover, emphasizing intellectual property and innovation can further enhance a firm's attractiveness to acquirers, making it a crucial component of any mid-market business strategy.