Australian mid-market activity

Q4, 2018 Financial Year

We are happy to present the quarterly instalment

of our mid-market M&A overview. The focus of the
analysis is on the current quarter with the aim of
providing you with a brief overview of current mid-
market M&A activity.

Overview
The number of transactions in the fourth quarter of the
current financial year decreased 7% on the previous quarter
and 20% compared to the same period last financial year.
While the number of transactions decreased, the average
deal size increased from $19.1million in Q3 to $25.5million in
Q4, an increase of 34%. The average deal size over the last
12 months was $22.2million, a decrease from the average
deal size of the prior 12 months of 21%.
Number of transactions and disclosed average transaction value by quarter
350 $42.0m

300 $36.0m

250 $30.0m

200 $24.0m

150 $18.0m

100 $12.0m

50 $6.0m

0 $0.0m
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016 2017 2018

Number of transactions (LHS) Average EV of transactions disclosed (RHS)

Sector
The consumer discretionary sector (27%) remained the most active
sector during the quarter followed by industrials (16%). Information
technology (14%) and Healthcare (14%) overtook Materials (11%) as
the equal third most active sectors for the quarter. Combined, the top
4 sectors account for over 71% of all transactions completed in the
quarter, a slight increase on the same time last year where the top four
transactions represented 66% of all transactions during the quarter.
The most noticeable increase was in the healthcare sector, with a
doubling in activity compared to the prior quarter increasing to 14
transactions. Consumer staples decreased by 75% to 5 transactions
due to reduced activity in the food and staples retailing and household
and personal products sub-sectors. Other significant movements
occurred in the materials sector which decreased by 31% to 11
transactions.
Geography
Overseas acquirers represented 26% of all transactions. US acquirers
were the largest acquirers of Australian companies with more than 11%
of all acquisitions in the quarter, a result that is slightly higher than the
trend over the last twelve months at an average of 7% of all transactions.
UK acquirers represented 2% of all acquisitions which is in line with the
prior quarter, yet lower than trends over the last two years.
Overseas acquirers continue to remain active across most sectors,
in particular consumer discretionary which has been the most active
sector throughout the financial year. In comparison to the last financial
year, total activity has decreased by 25% and relative to this there
have been noticeable activity movements in consumer discretionary,
industrials and materials. Both consumer discretionary and industrials
increased by 9% and 5% of total overseas transactions during the
financial year, and materials decreased by 7%.

Top sector activity and number of transactions EBITDA multiples

TheOther
Nexia MM Index (see below regarding methodology and limitations)
is compared to relative ASX indices in the graph.

The ASX Emerging Companies index and ASX All Ordinaries index have
Materials
Other increased by 5% and 8% respectively from the prior quarter, with ASX
17 Consumer Emerging Companies remaining 8% ahead of the same time last year
Discretionary and the ASX All Ordinaries 7% ahead. The Nexia MM Index has remained
27 Healthcare
steady over the quarter.
Materials
One transaction can have a significant impact on the Nexia MM Index. To
11
IT more insight into the Nexia MM Index, we have highlighted the
provide
EBITDA and multiple of some of the transactions.

Healthcare Industrials Although, the same limitations apply to this analysis as the overall index,
16 Industrials
the analysis bears out the relationship between multiples and size with
14
lower EBITDA generating companies also receiving a lower multiple. It
also provides an insight into the relative sector multiples.
Information Consumer Discretionary
Technology
14
 The Nexia MM Index compared to relative ASX listed companies
18.0x
16.0x
14.0x
12.0x
10.0x 8.4x 9.1x 8.5x 8.6x 8.8x 8.7x
10.3x 8.1x
9.2x 9.6x 8.8x
8.0x 9.4x

6.0x
4.0x
2.0x
0.0x
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016 2017 2018

Nexia MM Index ASX All Ordinaries ASX Emerging Companies

Snapshot of EBITDAx distribution by sector should in no way be seen as a substitute for a rigorous review of any
potential opportunity that you may be considering and you should seek
$30.0m appropriate professional advice for your circumstances.

$25.0m We note that the source data is limited by the amount of information
that is made public and captured in the S&P Capital IQ database. The
$20.0m calculations we have performed, in particular due to the limited number
of data points in respect of EBITDA multiples, can be heavily influenced
EBITDA

$15.0m by a single transaction which reflects that transaction’s particular

circumstances rather than a reflection of the market as a whole.
$10.0m
Analysis of all transactions, including sector and buyer location is based
$5.0m on S&P Capital IQ classifications.

$0.0m About the Nexia MM Index

0.0x 5.0x 10.0x 15.0x
EBITDAx
Consumer Discretionary Consumer Staples Financials
Healthcare Telecommunication Industrials
Information Technology Services
Methodology
The analysis was prepared based on data sourced from S&P Capital
IQ at the end of each quarter. Our data set has not been updated for
transactions that may be added to S&P Capital IQ retrospectively as
data becomes available. Data analysed is for completed transactions,
with a primary geographic location in Australia and an implied
enterprise value of less than $200 million from 1 July 2014 to 30 June
2018. Transactions where no value was disclosed is included in the
volume data with the implicit assumption that these would relate to
smaller transactions and therefore meet the criteria.
Overall 2,397 transactions are included within the data analysed.
Transaction values were disclosed for 1,124 (47%) of these transactions
with an aggregated transaction value of $31.2 billion. 129 transactions
(5%) had sufficient data disclosed to calculate the EBITDA multiples.
In respect of our methodology we note that this is a simple analysis
to give an overview of the market and potential movements. It
20.0x The Nexia mid-market EBITDA multiple (Nexia MM Index) analysis is
a simple analysis of EBITDA for acquisitions of unlisted mid-market
Energy companies where the data is reported. It is indicative of a trend in
Materials the overall market rather than implying the multiple that should
be considered for a particular company. The Nexia MM is limited
by a number of factors, including that there are a small number of
transactions in Australia where the data is available. As a result the
average EBITDA multiple can be significantly influenced by individual
transactions where the specific characteristics of the transaction
may have resulted in a higher or lower multiple than would otherwise
be achieved. To minimise the impact we have shown a rolling annual
EBITDA multiple for disclosed transactions above.
In considering the data against the listed company comparative, the
Nexia MM is based on acquisitions and therefore implicitly reflects a
control premium whereas the multiple for the listed companies reflect a
portfolio interest.
The range in the identified EBITDA multiples is significant at 0.1x to
64.3x in FY2015, 0.1x to 60.0x in FY2016 and 1.0x to 47.1x in FY2017.
The range for the current year in FY2018 is 3.3x to 45.0x.
Contact us
If you would like to discuss further any of the information provided
in this update and how it will impact you, please contact your Nexia
Advisor.
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The material contained in this publication is for general information purposes only and does not constitute professional advice or
recommendation from Nexia Australia. Regarding any situation or circumstance, specific professional advice should be sought on any
particular matter by contacting your Nexia Representative.