Australia fertile M&A ground in 2024 as deals pick up pace

Australia is primed to be centre stage for the corporate dealmaking world in 2024, with a unanimous verdict that it will have the strongest economy compared to its Southeast Asian neighbours.

Almost every respondent to Pitcher Partners’ Dealmakers Australia Mid-market M&A Outlook 2024 indicated that they were searching for deal opportunities in Australia over other markets in the Asia Pacific region.

The annual survey of dealmakers revealed 70% of respondents said they would increase deal activity in Australia over the next 12 months – the strongest sentiment recorded in three years – and 95% were planning M&A in the country this year.

Respondents gave Australia a 77% confidence score when rating the current environment for M&A, based on the ease of doing deals, sourcing opportunities and other factors crucial to yielding value from these transactions.

“In many regions around the world, most recently in the Middle East, political instability and geopolitical pressures continue to disrupt markets and undermine confidence,” Pitcher Partners Sydney Corporate Finance Partner Andy Hough said.

“Australia stands broadly removed from these conflicts and dealmakers continue to view the nation as a safe haven, underlining its strategic position as a key market.”

Among the key findings of the Dealmakers report, overall M&A deal values ended 2023 at AU$114.57 billion, a slight increase on the AU$114.5bn recorded in 2022. The performance compares to a drop in global deal values of 12% in the same timeframe.

In the mid-market (deals valued between AU$10m and AU$250m) there was a marginal 1.2% jump in deal values to AU$19.59bn in 2023, compared to 2022’s total of AU$19.35bn.

Dealmakers are preparing for a rebound in activity after a challenging 2023 that only picked up steam in the final quarter.

Mr Hough said mid-market deals are expected to remain a key part of the corporate finance landscape in 2024, and the Australian market is ripe with investment opportunities.

“Dealmakers are looking at the mid-market more favourably because it offers a better balance of risk and reward than small caps or mega deals, which leads to healthier returns on investment,” Mr Hough said.

“Mature mid-market companies, with their established market positions and consistent revenue, make them attractive targets for investors seeking stable returns.”

Among the factors that drive Australia’s appeal market for mid-market M&A were:

• the deal sourcing opportunities (65% of respondents)
• legal certainty (63%)
• attractive valuations and returns (62%)
• exposure to new or advanced technology (57%)

A sign of the market’s anticipated strength is shown in the 85% of respondents who expect increased competition for assets.

Private equity, foreign dealmakers and a closer alignment between sellers and buyers are expected to be the main drivers of M&A activity for both the mid-market and overall.

Technology, media and telecommunications deals are again expected to dominate mid-market activity, with 87% expecting a rise in dealmaking in the sector.

Investment in digital infrastructure, e-commerce platforms and data analytics is growing in the mid-market, and businesses in this space continue to lead in the uptake of new technologies to support customer demand.

Among other sectors primed for mid-market deal growth, respondents nominated pharmaceutical, medical and biotechnology (45%), consumer (45%), financial services (42%) and business services (38%).

While dealmakers continue to cite Australia as fertile ground for doing corporate deals, Mr Hough warns that a sudden shift in the economic or political landscape could scuttle those hopes.

Similar sentiments expressed in the corresponding survey 12 months ago did not have the effect of producing deals.

Overall Australian M&A deal volume dropped 17% from the prior year, in line with the 17.4% drop seen globally, as interest rate hikes and inflationary pressures impacted dealmakers’ investment strategies and operations.

Only 897 deals completed, one of the lowest volume years in the past decade, even taking into account the drop off in activity with the onset of the COVID-19 pandemic.

Mid-market deal volumes also fell away by 19%, in line with the broader market.

“Dealmakers were extolling Australia’s virtues and saying all the right things regarding their investment intentions last year, with 87% saying they planned to invest and another 60% signalling they would be increasing investments,” Mr Hough said.

“But that didn’t translate into something concrete in terms of deal volume and it’s clear that dealmakers were hesitant, reflecting those economic and geopolitical uncertainties.

“The positive news is that it is unlikely we would see consecutive years of such low volumes and we would anticipate an increase closer to historic average dealmaking levels.” The full report can be accessed here.