The Silent Deal Killer in Australian M&A — And the Playbook to Overcome It

The Challenge of Acquiring Trust-Structured SMEs in Australia

As an investor and M&A practitioner looking at acquisitions across multiple sectors in Australia, one of the recurring challenges I encounter is that many SMEs are structured as trusts rather than private companies. This has major implications for how acquisitions can be structured and financed.

Why So Many SMEs Are Structured as Trusts

In Australia, it is very common for family-owned and privately held SMEs to operate through trust structures. This is largely due to: Tax efficiency: Trusts allow flexible distribution of income to beneficiaries, minimising tax; Asset protection: Separating legal ownership from beneficiaries and Succession planning: Easier intergenerational wealth transfer.

Why You Can’t Simply Acquire a Trust

Unlike a company, a trust is not a separate legal entity with shares to purchase. The trustee (often a Pty Ltd) legally owns the assets on behalf of the beneficiaries. You can buy the trustee company, but unless you also control the appointor rights under the trust deed, you don’t control the trust. This makes a conventional share acquisition impossible in many cases.

Why Sellers Resist Converting to a Company

Some businesses can be restructured into a Pty Ltd, but most sellers resist because of the tax consequences: Transferring assets from the trust to a company crystallises gains; Stamp Duty: Payable on property and other asset classes; Loss of tax flexibility: Trust distributions allow income splitting; companies do not.

Implications for Deal Structuring

For buyers, this presents a real challenge. Share purchases are generally cleaner because you acquire the history, contracts, and trading continuity of the business. With a trust, that option may not be available. Asset purchases are possible but require re-papering customer contracts, supplier agreements, and employee transfers — all of which create complexity.

Can You Do an LBO with a Trust-Structured Business?

Leveraged buyouts (LBOs) are harder with trusts. In an asset purchase, lenders are cautious because the acquiring entity is a newly formed company without trading history. While asset-based financing (against receivables, plant, and property) is still possible, cashflow lending is more difficult at day one. However, with the right structuring — often combining asset-backed debt with vendor finance — it can be done.

Practical Solutions for Acquirers

There are several ways to overcome these hurdles:

1. Acquire the trustee company and appointor rights – giving you control over the trust.

2. Explore rollover relief provisions to restructure into a company without immediate tax liability.

3. Structure an asset purchase backed by debtor finance and plant & equipment loans, supplemented with seller finance.

4. Consider hybrid approaches, where you acquire control immediately and restructure later.

In summary, while the prevalence of trust structures in Australia makes acquisitions more complex, there are viable pathways forward. By understanding the legal and tax context, and structuring deals with a mix of asset-based lending, seller finance, and trustee control strategies, investors can still successfully execute acquisitions and build portfolios of Australian SMEs.

Article written by : Paul Seabridge

Paul is a #1 best selling author, global entrepreneur, M&A expert having completed over 100 transactions in 32 industries covering 12 countries including Australia. He is founder of OPC Capital Partners which helps business owners 10 x their business through mergers & acquisitions in < 12 months.

www.opccapitalpartners.com

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