A few years ago, an NDIS business went on the market for sale and was eventually sold for $100 million.
Given the size of the deal, the buyer likely had advisors.
Everything looked good —"good" financials, good scale (business had hundreds of millions in revenue), and "reasonable" asking price.
The deal went through, money changed hands, the buyer was happy... until they weren't.
What Happened?
Normally when you buy a business, you inherit the staff—as well as all the contractual obligations to them. This acquisition included thousands of staff. The trouble, which the buyer and their advisors appeared to overlook, was that these staff weren't just any staff—they were ex-government.
What does that mean? Well, government employees often have significantly more benefits than staff working in regular businesses. These benefits include:
- Higher superannuation (15% vs. 11%)
- Extended leave entitlements
- Stronger job security provisions
When the buyer finally realised it and did the maths, the true wages became significantly higher than the SCHADS rates (the rates most NDIS providers pay their care staff).
Imagine your competitors are paying their staff the SCHADS rates, while you're obligated to pay 20% more for the same roles. Ouch!
The Actual Problem?
In the NDIS sector, staffing costs alone can be as high as 80-85% of revenue. After deducting operating costs, margins for NDIS businesses get really tight. So when you're forced to pay significantly above market rates for labour, these already thin margins can disappear entirely, or even make the business loss-making.
Furthermore, this creates a severe cash crunch. Here's why:
NDIS providers typically get paid after service delivery, sometimes with significant delays
Meanwhile, you must pay staff wages, superannuation, and other entitlements on time
With thousands of staff on higher rates, this timing gap creates massive working capital requirements
Add to this the need to maintain larger cash reserves for:
Higher leave provisions (more generous entitlements)
Bigger superannuation payments (15% vs 11%)
Stronger job security provisions (for potential redundancy payouts)
The result? Even a well-capitalised business can find itself in a severe cash crunch in such conditions. Here, you're not just paying more — you're paying more, sooner, and having to tuck away more of your cash — money that's better used elsewhere in your business.
Despite their deep pockets, this acquisition nearly brought the buyer to their knees. If your business is not as financially strong, the outcome could have been catastrophic.
Lessons for Organisations Pursuing M&A
1. Sometimes, the risks in a business aren't immediately obvious. That's why you need an advisor who not only can conduct standard due diligence but also has a keen analytical eye to spot unusual patterns and see anomalies.
Such a person would have helped you recognise that the business originated from a government entity and flagged the employment contracts for special scrutiny, thereby helping you avoid costly mistakes such as one made by the buyer above.
2. Sometimes a good advisor isn't the most expensive one. It's the one who can see what's not obvious and can spot issues before it's too late.
About Zenify Investments
Zenify Investments is a boutique M&A advisory firm specialising in Australian SMEs. We bring big-firm expertise without the premium price tag, delivering sophisticated analysis with practical, hands-on support.
Want to make sure your next deal doesn't hide costly surprises? Let us help you spot them before it's too late.
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