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Value Creation in changing times: What Australia’s CFOs need to know right now in advance of a future divestment

By Tim Hall, Private Partner, PwC Australia, Chelsie Harris, Private Partner, PwC Australia, Kosta Kangelaris, M&A Partner, PwC Australia, and Paul Tasker, Value Creation Partner, PwC Australia

Amidst rising inflationary pressure and economic uncertainty, you’d be forgiven for thinking the M&A market might cool in the coming months. But, as our expert panel revealed at the most recent Private Business CFO Connect webinar, the rest of 2022 is expected to be an exciting time for deals in Australia. 

The current view from PwC is that the private M&A market is likely to remain active thanks to strong corporate balance sheets, Australian-based private equity funds sitting on record ‘dry powder’, low unemployment and strong deal pipelines. However, it is getting harder, as the gap between buyers and sellers widens due to rising interest rates. 

Shifting headwinds

So, what can CFOs and finance leaders expect in the medium-term? As webinar participants heard, there are shifting headwinds on the horizon. 

Industries such as tech, food and agri and waste remain in high demand - a trend we can expect to continue in the private M&A market.

Data is the key to unlocking Value Creation 

How can CFOs maximise Value Creation in advance of a future transaction? 

In short: data, analysis and preparation. 

According to our panellists, data has the potential to provide a source of competitive advantage for a business contemplating a future sale. Triangulating multiple datasets including outside-in reference points can assist in identifying and unlocking the full potential in a business across commercial, operational and capital levers.  

As CFOs prepare for any future sale event, it’s vital they invest in lifting maturity in data analytics as a mechanism to unlock Value Creation potential in this increasingly volatile market.

Three common Value Creation levers to explore with data

No two businesses are the same, but a couple of value levers tend to be common to many businesses and may be worth investigating for upside potential. 

1. Pricing: Focus on the tail 

Many businesses are excellent at optimising pricing on their bigger customers, but pricing decisions around the long tail of customers can be inherently noisy and a potential source of Value Creation upside. A simple example given during the webinar explained how a CFO may use data to focus on the bottom 30% of customers based on sales, splitting them into two groups: the low-margin cohort and the high-margin cohort. The Value Creation opportunity presents itself when the business works to bring the low-margin cohort into alignment with the high margin cohort for similar sized customers with similar attributes. 

2. Geospatial Analytics: Focus on high value postcodes

Another way to identify and pursue Value Creation upside is to assess a business’ highest-margin categories and customer segments, and then use geographic data to consider whether all high value regions are being serviced appropriately. That is, investigating the specific postcodes that are under-served and using that data to proactively steer sales investment effort. This strategy has proven effective in both B2B and B2C businesses including foodservice, software and building materials.  

3. Payroll: Minimise wage trust risk

Wage trust continues to be a considerable risk, especially for a business considering a potential future sale. Additionally, a business with a significant number of personnel tied up in payroll may be able to unlock efficiencies through the adoption of Cloud based payroll platforms. There are several payroll and workforce management platforms available that can reduce headcount from a payroll function, improve the wage trust risk profile, and assist in accessing further rostering/workforce management opportunities.

Avoiding value erosion

Value Creation remains fundamental in the current climate, but just as important is preventing value erosion – and preparation is key. Validating the integrity of financial information and forecasts through vendor due diligence, defensible run rate analysis, optimal tax structuring, and proactively managing potential perceived risks to buyers increase vendors’ potential for a strong deal outcome.

The power of competitive tension

Equally important to maximise proceeds in a future divestment in 2022, and beyond, will be leveraging a strong M&A global adviser network, coupled with strategies backed by data to drive competitive tension during the sale process.  

We're here to help

To learn more, read the new PwC content series about Australia's deals outlook in 2022.

For a more detailed discussion, please get in touch with your PwC advisor or contact: