Stability makes Australia the ‘regional sweet spot’ for M&A deals

The local mergers and acquisitions market will get a boost from Australia’s economic stability compared with the wider global uncertainty, accounting firms say. 

Pitcher Partners Melbourne corporate finance partner Michael Sonego said Australia was emerging as the preferred location for M&A activity in the region. 

“For all the pessimism and fear of an impending recession, this economy is not slowing people down,” said Mr Sonego. 

“Australia’s economic stability and certainty has cemented its position as the preferred mergers and acquisitions market in the Asia-Pacific region, as dealmakers seek to insulate themselves from global volatility.” 

Mr Sonego said deals would continue throughout 2023 although larger scale mergers might stall.

“I don’t think we’ll be seeing any overly high valuations or dealmakers paying a big multiple for a business at the moment but realistic deals will be made,” he said. 

“Rising interest rates might make acquisitions more expensive and high inflation could bite into investment returns, but offsetting those concerns is the fact that Australian investments are seen as a strong hedge against economic and geopolitical uncertainty.”  

PwC Australia’s deals business leader Rob Silverwood agreed and said the relative safety of Australia during a period of international uncertainty, particularly in the US and UK, meant merger and acquisitions deals would continue.

“While global business sentiment may dampen as a result of impending recessions in the UK and US, investors will likely turn to Australia’s safer shores to spur market activity,” said Mr Silverwood. 

“Similarly, COVID caused a refocus on supply chain resilience, leading to a surge in Australian manufacturing sovereignty.” 

“Essential sectors such as healthcare, education, defence, energy transition and infrastructure will be attractive to investors, particularly when coupled with defensible assets such as IP patents and the ability to pass on costs.” 

Mr Silverwood said the 2023 mergers and acquisitions sector was “not for the faint hearted, but with the right strategy investors will earn long-term success”. 

Assurance and advisory partner at HLB Mann Judd Sydney Simon James said Australia’s relative stability was a pull factor for local deals.

“Australia has always had its fair share of international money coming in for its relative economic stability and its proximity to China,” said Mr James. 

“There’s always overseas interest in everything over here just for that, it is seen as a relatively safe haven to make deals, so I don’t expect that to change any time soon.” 

He said there was now a greater focus on the people brought along with a deal.

“There’s a lot more focus on the team that you’re acquiring, there always used to be, but it’s more upfront. Has the business turned over all its staff since the results you're looking at historically? Are you actually buying the team that actually delivered those historic results,” said Mr James. 

“Have you got enough people there to man the growth in the business that you’re expecting? Are you going to struggle to find people to fill the holes?”

“There’s a few elements of that.”  

Head of corporate finance at William Buck Mark Calvetti expected to see SMEs as primary players in the mergers and acquisitions market, which would decrease in value although the volume would remain. 

“As the cost of debt rises, the number of mega-deals with a value of $250 million-plus should decline, leading to a reduction in aggregate value,” said Mr Calvetti. 

“However, those in the SME space of up to $50 million should remain steady and could even see a hike in volume.” 

William Buck’s Dealmaking Insights Report 2023 revealed mega-deals boosted last year's aggregate value of the mergers and acquisitions sector by 59 per cent year on year to a landmark $191.9 billion, despite the number of deals decreasing 29 per cent. 

It was the largest value recorded since 2007 and the lowest number of transactions at 1,210 recorded over the 10 years of William Buck’s research. 

The firm’s research also revealed the largest sector for the value of deals was energy and utilities, at $83.8 billion, despite just 54 transactions. 

Included in this landmark figure was the BHP Petroleum and Woodside merger at $27.2 billion and Brookfield’s acquisition of Ausnet for $19.8 billion. 

The industries with most transactions were materials and technology, and media and communications with 250 and 247 respectively. 

William Buck’s report also revealed private equity in Australia saw a milestone aggregate deal value of $20.8 billion despite a 20 per cent drop in the number of deals made year-on-year to 161.

The firm said in light of economic challenges and geopolitical unrest the private equity sector was relatively resilient and would likely be in a position to target firms under pressure from the volatility. 

“As the number of distressed businesses continues to rise, private equity firms are expected to target these distressed assets, leading to higher levels of distressed mergers and acquisitions in 2023,” said the firm.