Dealtracker: The Outlook for Australian Mergers & Acquisitions
The local and global political activity of the past couple of months will impact the level of Australian M&A activity in the short term, according to Grant Thornton’s Dealtracker report. However, strong continued demand for Australian businesses is likely to increase once these political headwinds subside. While volatility is no friend to global deal markets, the fallout from Brexit is expected to be short lived, bringing more opportunity to the local market in the long term.
The uncertain trading environment for UK corporates may reduce their appetite for overseas investments, while the ability of Australian corporates with material UK operations to transact will likely be dependent on the ability of potential acquirers reaching a level of certainty on any adverse consequences to earnings. General volatility in equity and currency markets may add to the slower deal momentum already being experienced during CY2016.
However, on the upside, uncertainty in Europe may translate to greater interest in Australian assets with limited exposure to Brexit concerns.
Locally, with the government facing increased uncertainty in the Senate in the recent federal election, increased uncertainty and ambiguity around government policy will impact both the Australian economic and deal outlooks.
Once the volatility subsides, for the remainder of 2016 and 2017, we can expect the following from the Australian M&A market:
- Strong continued demand for businesses from offshore acquirers keen to leverage quality Australian products into their home markets;
- Availability of private equity funding for scalable midsize businesses;
- Strong demand for businesses in the IT and food sectors;
- A moderation of valuation transaction multiples from the levels seen over the past 18 months; and
- Tougher conditions for undertaking IPOs with increased regulatory oversight on disclosure.
To learn more about the latest in deal trends, read “What Makes Companies Successful and Ripe for Acquisition?” in the Q3 Business Valuation Australia (subscription required).
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How names impact domain valuation
While pockets are not as deep today as they were in years gone by, some significant sales of domain names are still taking place.
Jim Horvath and Jeff Horvath reviewed the 128 reported transactions in domain names for over US$1 million each. Only eight (6.2%) were not “.com,” the major top-level domain (TLD) for the US. Here are some of the major insights they share from their review:
- From the high value sales listings, excluding four numbers, 12 abbreviations, and 18 compound phrases (“carinsurance”), a large majority (74%) are common generic, single, pronounceable words, spelled correctly with no hyphenation, mixed characters, or numbers. Such common words are more likely to appear as search terms, and therefore websites using such names are likely to receive more traffic (especially type-in traffic), although that too is changing as web surfers are becoming more reliant on search engines and apps.
- More than half of the names on this list have six characters or less. That is not to say the shortest names are the most valuable; the top four all have eight characters or more. However, a shorter name is likely more memorable and therefore has a higher value.
A notable example—and exception—is “marijuana.com” (No. 38 in the over-US$1 million list), which was sold in 2011 for US$4.2 million by WeedMaps, a subsidiary of General Cannabis Inc. As worldwide acceptance for medical and recreational marijuana increases, the value of this domain undoubtedly will also rise.
Value is in some way dependent on social conditions and current events. For example, “elections2016.com” has significant value up to and perhaps a little after the US federal elections in November 2016 but likely not much after that date. In fact, this domain has been registered and is currently for sale.
- Longer names are also differentiated by their full meaning; websites such as insurance.com, privatejet.com, or crosswordpuzzles.com are unambiguous as to their likely subject matter (nearly half of all “.com” registrations are English keywords), which encourage consumers to click through search results, giving the owner access to better qualified online traffic—hence, a higher value.
- Plurals tend to have a higher value than the singular version of the same word. For example, “hotels.com” sold for US$11 million in 2001. Today “hotel.com” simply redirects a visitor to the plural version of the site, which is part of a network of 85 locations in 24 languages.
Jim Horvath and Jeff Horvath wrote an article on domain names, which goes into greater depth for the Q3 Business Valuation Australia (subscription required).
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Ask the Experts
Q: What valuation resource do you consider to be the most valuable?
A: “Networking,” says Larry Cook, a veteran valuation expert who is chief partner and founder of Larry Cook & Associates PC. “There is no replacement to finding and surrounding yourself with four or five people that you can pick up the phone, and say, ‘Hey, I am in the middle of a sticky thing here. What do you do?’”
Source: Jim Alerding recently interviewed Cook during a webinar, Expert Insights: Q&A With Larry Cook. To acquire a recording, go to www.bvresources.com/dlc.
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Global BV news:
IVSC and TAF bridge gaps in standards
The International Valuation Standards Council (IVSC) and The Appraisal Foundation (TAF) have harmonized any remaining differences between the IVSC's International Valuation Standards (IVSs) and TAF's Uniform Standards of Professional Appraisal Practice (USPAP). This is an important step toward establishing globally accepted valuation standards.
A bridge not too far: Last year, the two groups met to establish joint objectives and a long-term plan to collaborate and execute upon a memorandum of understanding (MoU) signed in October 2014. The result: “A Bridge From USPAP to IVS,” a newly released document that connects the two sets of standards. Appraisers using this "bridge document" will be able to develop appraisals that are compliant with both the IVSs and USPAP, keeping the core principles intact.
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Business Valuation and Forensic Accountants Conference Coming in September
Chartered Accountants Australia and New Zealand present the Business Valuation and Forensic Accountants (BVFA) Conference from 12 September-14 September in Southbank, VIC, at the Crown Conference Centre.
Session topics include modelling techniques for valuations in Excel, family law valuations, impairment, practical applications of valuations and transaction and valuation activity insight.
Richard Stewart, OAM, FCA, partner at PriceWaterhouseCoopers and Business Valuation Australia editorial advisory board member, will present on valuing early-stage businesses, including the six major techniques for valuing startups. He will outline the pros and cons of each and cover the unique aspects of the startup investment market that make this area risky for valuers. He will also set out how valuers should best manage that risk.
Click here for registration details.
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