Renewed optimism to make deals in Australia

Handshake after deal. | Newsreel
There is optimism in the Australian Mergers and Acquisition market. | Photo: Wasan Tita (IStock)

Investors are signalling improved conditions for Mergers and Acquisitions in the Australian market over the next 12 months.

Pitch Partners’ Dealmaker report showed an optimistic trend for deals, with the focus shifting to strategic investment, as opposed to reactive and opportunistic moves.

The report is based on survey responses from Mergers and Acquisition (M&A) dealmakers who have completed at least one deal in Australia in the past year.

Sixty percent of respondents were from Australian corporations, 30 percent foreign corporations with operations in Australia, 5 percent Australian private equity firms and 5 percent foreign private equity firms.

The report noted that in the past year, despite persistent headwinds, such as global economic conditions and overseas conflicts, respondents were optimistic towards Australian opportunities, with a 77% confidence score when rating the current environment for M&A.

Almost all respondents (95 percent) said they were searching for deal opportunities in Australia and 70 percent said they would increase M&A in Australia over the next 12 months – the strongest sentiment recorded over the past three years.

A CFO of a Chinese corporation commented in the survey that “clients want to invest in stable markets… local and foreign investors are keen about investing in Australian markets in the year ahead.”

The report said the Australian mid-market (deals valued between AU$10m and AU$250m) would very likely see consistent and expanding activity. It said mature mid-market companies in established industries offered stability and steady growth prospects, while those on the cutting edge of innovation (new tech and renewable energy), presented opportunities for growth capital to scale their operations.

“Dealmakers can easily turn to the mid-market to make bolt-on acquisitions to enhance their capabilities,” it said.

The report said a sense of stability had returned to the Australian M&A market, with deals in 2023 totalling $114.57b, a slight increase on 2022.

There were several mega-deals highlighted for 2023, including the $24.5b acquisition of Newcrest Mining by Newmont Mining and $8.6b sale of Chemist Warehouse Group to Sigma Healthcare.

However, despite the capital figure growing, the total number of deals declined by 17 percent, with only 897 competed, making 2023 the lowest M&A volume year in the past decade and the sharpest year-on-year decline, even taking into account the drop off in activity during 2020 and the onset of the COVID-19 pandemic.

The report said this was at odds with dealmaker sentiment early in 2023 when 87 percent said they were planning to invest and another 60 percent said they would be increasing investments.

It suggests uncertainties arising in economic and geopolitical spheres tempered investment and, despite reported optimism, “the year ahead may prove equally rife with uncertainties for unprepared or ill-advised dealmakers”.

Read the full report.