APPROACH
The return is earned before the exit, not at it.
We do not underwrite a market view. We underwrite a specific, removable defect in a business that is otherwise sound, and the work of removing it.
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- Constraints we fix
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- Ways we engage
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- Services we offer
THE UNDERWRITE
Buying well is not the same as buying cheaply.
A business carrying a structural defect trades below what its earnings would otherwise support. That discount is not mispricing in the usual sense. It is an accurate reflection of the fact that most buyers cannot do anything about the defect, and a buyer who cannot fix it is right to pay less.
The return therefore does not come from having identified something the market missed. It comes from being able to remove the thing the market correctly priced. That is an operating capability, not an analytical one, and it is the reason preparation rather than pricing is where we spend our time.
It also sets the test we apply to ourselves. If a thesis depends on valuations going up across the market, a market recovery, or a buyer paying more later for reasons we cannot control, it is not a Mercurian thesis. We decline it.
WHAT WE FIX
Capital structure
A business can be profitable and still be structurally unable to grow. Debt priced for a smaller enterprise, working capital consumed by payment terms it has no leverage to change, shareholder loans and related party balances that no incoming lender will look through. The trading performance is fine. The structure sitting on top of it is what makes the business uninvestable.
This is the easiest of the four to fix and usually the first thing we address, because until it is resolved nothing else can be funded.
Key person concentration
Client relationships, pricing authority, supplier terms and institutional knowledge held by one person. Not as a documented arrangement but as a practical fact, which is worse, because it cannot be transferred by signing anything.
Buyers do not discount for this. They decline for it, and correctly, because what they are being offered is a job rather than a business. Building the layer beneath the owner is slow work measured in years, and it is the single largest determinant of what an owner realises at exit.
Financial opacity
Owner drawings that are not documented. Personal and business expenses mixed through the accounts. Revenue adjustments nobody can explain and insurance lines that move without reason. The earnings may be real. If they cannot be normalised to a defensible number, they cannot be underwritten, and diligence stops.
Three years of clean, reconstructed financials is often the highest return work available to a business preparing for sale, and almost nobody does it early enough.
Delivery and compliance infrastructure
In regulated and technical sectors the constraint is frequently neither commercial nor financial. It is the absence of certification, licensing, project management capability, documented process and evidence of prior compliant delivery. Without that layer a business cannot bid for larger contracts or add capacity, regardless of demand or balance sheet. A services firm with excellent engineers and no documented delivery methodology hits the same ceiling as a builder without a Class 9 project history.
This constraint is the least understood and the most defensible once built, because it takes years to assemble and cannot be bought quickly by a competitor with more capital.
POSITION
Control, or structure that behaves like it.
Removing a structural constraint requires the authority to make decisions the previous owner did not make. We therefore take control positions, or structured positions carrying the governance rights and protections that allow the work to proceed.
Control positions
Majority ownership, board control, and direct responsibility for the operating plan. The standard case where the constraint is deep and the timeline is long.
Structured positions
Minority capital with negotiated governance rights, board representation, a say over major decisions, and protection if things go wrong. Used where an owner intends to remain and is the right person to remain, and where the constraint can be removed alongside them rather than after them.
Transition
We prefer vendors who stay engaged through the handover. Paying part of the price later, tying some of it to future performance, and setting a defined transition period are not ways of paying less. They are how the knowledge that currently sits with one person is actually transferred, and a vendor unwilling to discuss any of them is usually telling us something about how transferable the business is.
SECTOR LOGIC
Five sectors, one industrial economy.
Construction and mining services, logistics and transport, and business technology and IT services are not separate bets. They serve the same Western Australian customers: resources, construction and heavy industry. A civil contractor, the transport operator moving its plant, and the firm that implements and supports its enterprise resource planning system are exposed to the same capital cycle and often to the same counterparties. Understanding one improves our underwriting of the others.
Aged care and home care sit outside that economy and are there for a different reason. Demand is not in question, the delivery constraint is documented, and the sector's binding problem is capital and workforce rather than market access. It is the clearest available example of the thesis.
Regulated financial services is where we treat the compliance perimeter itself as the asset rather than as a cost of doing business.
How we work with owners and acquirers
Most of what we do is invest. Alongside that, we take on a small number of engagements each year where a buy side view is useful to someone other than us. There are three. Each one states what it costs and what we retain the right to do.
Before the Buyer
No fee.
A conversation about what an acquirer will see when they look at your business. Financial quality, management depth, revenue concentration, key person risk, and the distance between where the business is and where a buyer needs it to be.
We do this because it is how we find businesses worth buying. That is the whole of the arrangement.
We may want to buy your business, and we say so at the start of every conversation. Nothing said is financial product advice, and it does not replace your accountant or your lawyer.
Runway
Fee by scope. Wholesale clients only.
A structured engagement over six to thirty-six months, working through the gaps a buyer would otherwise price in. Normalising the financials to a number that holds up. Building a management layer that survives your departure. Reducing customer concentration. Documenting what currently sits only in your head. Improving margin.
How much of that is achievable depends entirely on how long you have. At six months we can normalise what already exists and prepare you for the questions. Building a management layer and moving customer concentration take years, and we will tell you at the outset which of these is in reach.
Fees are set by the scope and length of the engagement and agreed in writing before work starts. There is no success fee and no percentage of sale proceeds. We are paid for the work, not the outcome.
Three things we settle first
You need to be a wholesale client. Our authorisation covers wholesale clients only. Before we scope anything, we need a current certificate from a qualified accountant confirming you meet the test. If you do not meet it, we cannot take the engagement, and we will tell you rather than find a way around it.
We may bid for your business. We keep that right, and you acknowledge it in writing before we begin. The fee pays for the work. It does not buy our independence, and we do not pretend otherwise.
You take independent advice before accepting any offer from us. If we make an offer, we ask that you get independent transaction advice first, and that our number sits alongside either a competing process or an independent valuation. We will not be the only opinion on what your company is worth.
Before You Bid
Fee by scope. Wholesale clients only.
Buy side diligence and underwriting support for family offices, private acquirers and investment committees looking at an Australian lower middle market business. We apply the same test we use on our own deals: what would have to go wrong, before what would have to go right.
We do not run your process, negotiate for you, or act as your broker. We tell you what the business is, what we could not verify, and where we would walk.
Where we review a business for you, we will not pursue it ourselves for twelve to eighteen months after the engagement ends.
Mercurian Equity Pty Ltd (ACN 686 602 022) is a Corporate Authorised Representative (No. 1316987) of Providence Equity Holdings Pty Ltd (AFSL 487419). These engagements are available to wholesale clients only, as defined in the Corporations Act 2001 (Cth). Nothing on this page is personal financial product advice or an offer to acquire any business.
EXCLUSIONS
The constraint is a feature of the strategy, not a limitation on it.
Greenfield development. We invest in businesses with existing revenue, existing customers and an existing operating record. Not in plans.
Pre-revenue and early stage. A structural constraint can only be identified on a business that is already trading. Venture risk is a different discipline and we are not equipped for it.
Turnarounds where the constraint is commercial. If the product no longer sells, the market has moved, or the business has lost its position, that is not a problem our capability addresses. We decline these regardless of price.
Minority positions without structural protections. Capital with no governance rights cannot remove a constraint. It can only hope somebody else does.
Sectors where we have no operating knowledge. Distinguishing a structural constraint from a commercial one depends on knowing how a sector actually works. Our depth sits in the five sectors above, and that is where we look.
What would have to be true.
Every thesis we hold rests on conditions we can state. Where those conditions are unmet, or where we cannot establish whether they are met, we do not proceed. Our research sets out that reasoning in full for the sectors we cover.
Read our research