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EDGE 2025: Don’t become a ‘culture terrorist’ during M&A

Sellers should also be maximising their EBITDA or tap into a specific niche.

When it comes time to buying or selling a business, making as much profit as possible is important, however ensuring culture is maintained is key to guaranteeing lasting success, said an EDGE 2025 panel on mergers and acquisitions (M&A).

During a panel discussion on The Realities of M&A, Ericom CEO Kyle Page said in his opinion, culture is “much more important” than money when it comes to selling a business.

“I’m at an age where I’m not going to change another job. It’s gonna be my last two years of work, and I totally want to enjoy my last two years of work,” he said. “Therefore, when advisors came in do the due diligence, as a CEO, your eyes are taken off the ball on running your company, and that then has a big [effect], because they’ll say, ‘What does your figures look like for next year, in two years’ time?’; It’s a very stressful time to be in.

“Sometimes … people knock on my door again, and I go,’ No, not just yet.’ Then they go, ‘Oh, I got keen buyers.’ I’m going, ‘No, not yet,’ because I want to go through the culture check — tell me who they are. I’m interested in the money, but not interested in the money.”

Blackbird IT director Richard Stafford agreed with Page’s sentiments, adding that failing to align cultures, particularly if one business is buying another, is the quickest way to wreck a deal.

“If the company that you acquire [has its] current owner staying on, don’t screw the seller, because if you do, they’re going to become a culture terrorist in this business that you’ve just bought,” he said.

“So, really pay attention and buffer that in but make sure that you’re structuring a deal that enables the existing culture to remain, assuming that you’ve done that comparison of a cultural alignment.

“Also, make sure that the seller isn’t going to turn bad, because you’ve decided to bang a heap of management fees on the business that you just bought. It’s very important.”

Stafford added that he’s particularly proud of Blackbird’s previous acquisitions, noting a 90 per cent staff retention and 100 per cent customer retention, which he said came down to having integrity around people and culture.

While he didn’t mention specific company names, Blackbird IT acquired Calvert Technologies in August last year and Autonomous IT in 2022.

Go big or go specialised

When it comes to selling a business, it’s important to maximise earnings before interest, tax, depreciation and amortisation (EBITDA) to look as attractive as possible. If it’s not however, then partners should tap deep into a specific niche.

These insights were delivered at EDGE 2025 by Latimer Partners principals Mark Nesbitt and Hugh Richards during their presentation M&A Trends and Market Insights: Shaping the future of M&A deals in A/NZ.

“It’s a weak market for smaller and lower growth companies; the same thing you see in a small market. It’s not a uniquely Australian phenomenon, it’s very much a global phenomenon,” Richards said.

“The good news is global tech markets are strong, despite the significant global uncertainty and geopolitical uncertainty we see around us. AI, I think, is a major driver of that.”

To make use of that strength, Nesbitt said sellers should keep in mind that buyers are looking for scale.

“They want businesses that build out their capability, but at scale. So, they’re not really interested in really small businesses unless they have a very specialised capability,” he said.

If businesses want to scale their operations, Nesbitt recommended the Australian Securities Exchange (ASX) as one potential avenue, noting that tapping into supportive shareholders “can be a fabulous way to scale a business”.

One example of this in action, he continued, is Atturra.

“So, its business IPO was December 2021 with an enterprise value around $70 million, so it wasn’t a big business when it when it came onto the market,” Nesbitt said.

“Since December 2021 to today, three and a half years later, [it] raised $170 million through the ASX. This is all equity that’s been put into Atturra at increasingly high share prices. [It] used that to make 13 acquisitions. So, in three and a half years, their enterprise value has gone from $70 million to $250 million. It’s very hard to do that as a private business on your own.

“That said, the market’s now saying to them, ‘Look, guys, you’ve got to a decent scale now, you’ve almost got $400 million of revenue, you’ve almost got $40 million EBITDA, we want to see you start to grow organically. We want to see you slow down on the acquisitions. We want to see some organic growth.’ Until they really prove that out, the share price has come off.”

Funding sources

As for who’s funding IT M&A activity, one major player is traditional banks – particularly Westpac and Macquarie, according to Nesbitt, with the latter having a particularly strong presence in the market.

“[Traditional banks] are still keen to lend, they like IT services, they like recurring revenues, but they’re still fairly conservative,” he said.

“So, you might be able to borrow two, maybe three, times EBITDA at a low single digit interest rate. It’s good if it fits, but it doesn’t fit everyone.”

Nesbitt also said there is an emergence of private credit – non-traditional lenders, family offices and funds that have raised capital – which are lending either as debt or debt with equity instruments.

“They’re typically less restrictive around who they’ll lend to, but they charge higher interest rates, so you’ll see rates of 12, 14, 15 per cent, but they’re not going to be as restrictive as a big bank, and sometimes that’s less dilutive than raising capital.

“There’s a huge pool of money for the ASX, but it’s very, very fussy and very picky, as you saw with Atturra.”

Nesbitt also said that a lot of current M&A activity is stemming from private equity.

“Historically, when we looked at who were the serial acquirers for IT businesses, it used to be the ASX – it used to be the Tesserents and Spirits and all the highly valued ASX listed companies.

“Then that shifted to big consulting. So, when cloud came along, big consulting went, ‘We needed to build practices.’ They were out there paying big valuations for specialised businesses.

“They’re still out there, but by far and away, the most activity from the buyer universe right now is private equity backed companies.”