The best time to prepare your business for sale was three years ago.

1. Summary

Mercurian Equity reviewed more than a dozen Australian businesses over an eighteen month period. Civil works operators, freight and logistics platforms, road surfacing businesses, community health and visiting nurse services, assistive technology and mobility businesses, and transport operators across regional and metropolitan Western Australia.

Some we pursued. Several we did not. Across every opportunity that did not proceed to investment, the same pattern appeared. The businesses were not weak. The preparation was.

Five failure points recurred, in different combinations, across almost every declined opportunity. None of them were unfixable. All of them required time to fix, and in most cases the owner had already started a sale process before discovering that.

This note sets out what we saw, what it indicates about the Australian lower middle market, and what an owner contemplating an exit in the next three to five years should be doing now.

2. Method and sample

The sample is our own deal pipeline, not a survey. It is therefore selected rather than representative: these are businesses that reached preliminary review by a buy-side investor, which already filters out the smallest and least prepared operators in the market.

Five sectors are represented: civil construction, freight and logistics, healthcare services, transport operations, and business services. All are Western Australian. All sit in the lower middle market. The findings should be read as a buy-side view of what stops a transaction, not as a statistical claim about Australian small and medium enterprises generally.

The broader market context is that roughly 70% of Australian small and medium enterprise sale processes do not transact.¹ Our pipeline is consistent with that figure.

3. Findings

3.1 The business was the owner

Not metaphorically. Client relationships, pricing decisions, supplier agreements and institutional knowledge sat with one person. When that person leaves at settlement, the value leaves with them.

Buyers pay for businesses. They discount heavily for jobs. Management depth is among the largest single variables in private equity returns, and in the lower middle market it cuts both ways: its presence supports a premium, its absence removes the asset the buyer thought it was acquiring.

3.2 The margin profile did not survive scrutiny

Net margins ran structurally thin, in several cases below 2% for multiple consecutive years. In capital-intensive sectors this is not survivable under acquisition leverage. Capital-intensive sectors accounted for 24% of all ASIC registered insolvencies in FY2025.²

A thin margin at entry leaves no room for anything to go wrong. If the transaction requires every assumption to hold, it is not an investment.

3.3 The financials could not be normalised

Undocumented owner drawings. Mixed personal and business expenses. Unexplained revenue adjustments. Insurance lines that quadrupled year on year without explanation.

We spent material diligence hours attempting to reconstruct what earnings actually were and could not reach a defensible number. Earnings quality is a primary driver of both deal velocity and valuation. Clean financials transact faster and at higher multiples, and the work required to produce them cannot be done retrospectively during a live process.

3.4 Revenue concentration was too high

In more than one case a single government client or council relationship accounted for the majority of recurring revenue. Remove that relationship and the business as presented ceases to exist.

Sophisticated buyers underwrite customer diversification directly. A single customer representing more than 25% of revenue is a structural risk that a buyer will price into both the multiple and the deal structure. Most price it in twice, once in the headline number and again in the proportion held back.

3.5 The seller would not move on structure

Full cash at close. No deferred consideration. No transition period. No earnout.

We put forward structured proposals across multiple opportunities, including staged payments, twelve month handover arrangements and consideration deferred against forward performance. These were declined. In each case the position was taken late, after the owner had already formed a view of the number they expected, and without the runway to build the operating evidence that would have justified paying it in cash.

4. The pattern

Every business we declined shared at least three of the five failure points. The average was three.

The first three findings describe how a business is built. The last two describe how an owner thinks about leaving it. Together they explain why most exits in this market do not reach the price the owner had in mind, and why a substantial proportion do not complete at all.

The common factor is time. Key person concentration, customer concentration, margin fragility and financial opacity are all closeable gaps. None of them close in six months.

5. Preparation horizons

Table 1. Lead time and outcome

Runway to market	What is achievable	Typical outcome
Six months	Presentation only. Financials remain unnormalised, the team is unprepared, revenue concentration is unchanged. Buyers see all of it.	Discounted price, or the process does not complete.
24 to 36 months	Three years of financials cleaned, a management layer built, revenue diversification begun.	Deals transact. Value is still left on the table.
36 to 60 months	Every gap a buyer prices for has been closed, and the operating evidence exists to prove it.	Materially higher exit multiples.3

The single most important variable in what an owner realises at exit is not market timing, deal structure or valuation methodology. It is the interval between deciding to sell and going to market.

6. What to do about it

Table 2. Six actions, in order of lead time required

Action	Detail
Build the team, not just the business	A buyer needs to see the business operating without the owner. A general manager who owns delivery, documented role responsibilities, and a real rather than theoretical succession structure.
Diversify the revenue base	No single customer should represent more than 20 to 25% of revenue. If one does, assume two years to fix it. Buyers discount concentration further than owners expect.
Manage margins actively	Revenue growth is easier to achieve and worth less. In asset-heavy businesses two to three percentage points of margin can add a full turn to the exit multiple.
Normalise three years of financials	Engage an accountant who works on transaction normalisation rather than tax minimisation. Remove personal expenses, document every adjustment, and make EBITDA defensible rather than aspirational.
Document systems and intellectual property	Processes held in the owner's head carry no enterprise value. Processes held in a manual, a CRM or an operating system do. This is the fastest available reduction in key person concentration.
Form a view on deal structure early	Owners who have already considered earnouts, transition periods and deferred consideration are materially easier to transact with. Those who have not create impasses late in a process that is otherwise fundable.

If that reads like a twenty-four month programme, it is one.

7. How we engage

Mercurian Equity works with owners well ahead of an intended exit rather than at the point of sale. The work is to identify the gaps between where a business is today and where it needs to be to transact at the highest defensible multiple, and then to close them.

The engagement runs in three stages. A readiness assessment covering financial quality, earnings normalisation, customer concentration, key person dependency and operational documentation, tested against buy-side standards. A gap closure programme addressing key person concentration, margin improvement, revenue diversification, governance and operational systematisation. Then positioning, buyer identification and deal structure.

An advisor who meets an owner at the moment of sale can only manage an outcome that has already been determined.

8. Conclusion

What a buyer pays for is not what an owner did in the six months before the process. It is what the owner did in the three years before that.

Good businesses do not automatically make good investments. Preparation is what closes the distance between the two, and it is the one input that cannot be acquired late.