Home' Border Enterprise : Summer-Autumn 2011-2012 Contents 33
Vol 5. Summer/Autumn
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ALTHOUGH the Global Financial
Crisis (GFC) has had a greater
impact on commerce overseas
than it has in Australia,
domestic businesses have
taken a cautious approach to expansion plans,
particularly in light of the tighter availability of
working capital and investment.
However, and perhaps surprisingly, the
downturn in the economy has created the
opportunity for businesses to grow.
In its sixth global survey examining merger and
acquisition (M&A) deals, accounting firm KPMG
found that despite many people expecting the
past few years to be a difficult period for doing
successful deals, the results were actually quite
The KPMG study focused on mergers and
acquisitions completed between January 2007
and July 2009 - a period of transition which
included the final months of the M&A boom in
early 2007, the credit crunch in 2008 and the
subsequent global recession in 2009.
In its report --- A new dawn: good deals in
challenging times --- KPMG revealed that there
had been an increase in the proportion of deals
that created value --- 31 per cent compared to
27 per cent in the previous survey. The report
also showed that more deals were being done
with a focus on delivering growth, rather than
In addition, the economic slump caused a
significant decrease in the number of Private
Equity (PE) houses in the market which resulted
in softer prices and improved chances of
completing deals at prices that allowed value to
be created -- the overriding reason to merge one
company with another.
At a local level we have seen evidence
that businesses are prepared to merge if the
conditions are favourable --- most notably in
the financial sphere, with accountancy firms
Johnsons MME and Stirlings joining forces and
WHK and Simpson Grace uniting this year.
The principals involved in both mergers agreed
that the new alliances would bring significant
advantages for clients and staff.
"A major benefit of merging the two firms
is that it will enhance our people's ability to
specialise, which will in turn allow us to provide
a greater breadth and depth of services to our
clients in a seamless manner," said Johnsons
MME principal, Gary Essex.
"It will allow us to continue to provide a wide
range of services to our clients in the ever more
complex business environment that they operate in.
"The merger also allows the professional
teams of both Johnsons MME and Stirlings
to focus more on our clients' goals and less
on compliance and administrative functions.
Importantly, they can focus even more keenly on
the matters that are of value to our clients," Mr
Graeme Simpson, principal of WHK, said
"Our clients will still directly with our team and
continue to receive the high quality advice and
service we are renowned for."
He said both firms had similar cultures and
systems which made the merger relatively easy.
"Obviously you don't look at doing this type of
deal unless there are benefits to both clients and
staff," he said.
There are also other factors that need to be
taken into account when two separate but
similar businesses join together to combine
information, resources, employees and core
A true merger is an equal combination that
creates an entirely new company, often with a
new name and identity. The first thing that needs
to be understood and agreed upon is the goals
of each party to the merger. Once they have
been established the management team can then
analyse the pros and cons of the potential deal.
The primary advantage for a small business
considering a merger is the support it will receive
from another company through funds, advice
and name recognition.
Another advantage to mergers is the
combination of assets. While this may not lead
to outright funding for either business, it often
helps the new business complete operations
more smoothly and efficiently. Assets refer not
only to useful equipment or facilities but also
personnel who bring their talents and skills to
the new business.
A variation on the traditional type of merger
between similar companies is vertical integration
between a supplier and a producer, allowing the
new entity to control both its upstream suppliers
and its downstream producers.
The major downside to a merger is the
process itself. Due to the differences in systems,
processes, and even corporate cultures,
management can have difficulty in getting the
two companies to work together. This can
cause disruption in the business such as erratic
inventory levels, late shipments, and missed
deadlines which can ultimately affect the
company's revenues, margins and profits.
The bottom line is that a thorough evaluation
of all the pros and cons of a potential merger is
important for the success of the endeavour.
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