Deal Pulse: Queensland “Don’t Stop Me Now”

PITCHER PARTNERS BRISBANE 4 APRIL 2022:

After a tough 2020, Queensland deal volumes have hit an all time high. Covid warchests have been deployed as dealmakers vie for value in a post pandemic market.

Pitcher Partners’ latest Queensland Deal Pulse report saw 337 M&A deals:

• up 28% on last year; and
• up 342% in deal value with $44.3bn

2021 was the year of the mega deal, with nine deals over $1.0bn pushing total deal value to a record $44.3bn, more than double the previous highest result of $18.8bn in 2018.

Key facts and figures:

• The most active sector in Queensland M&A for a third year in a row was technology, media and telecommunication with 64 deals.
• Consumer deal volumes more than doubled from last years low of 25 deals, to 54 transactions, supported by the acquisition of consumer discretionary spending backed businesses.
• Energy, mining and utilities contributed 58.2% of the total deal values, led by 5 of the nine mega deals coming from this sector. In what could be a sign of the times, volumes fell from 49 to 34.
• Largest deal was the acquisition of AusNet by a consortium of investors including Queensland based Sunsuper for $17.8bn.

“Queensland dealmakers, along with consumers have indeed been “having a good time”. With 91% of Queenslanders now fully vaccinated, domestic and international borders back open, and the general mindset transitioning from pandemic to endemic, let’s hope the “don’t stop” mindset can continue for at least the next little while.

Technology, media & telecommunications (TMT)

Continued its upward trajectory, with 64 deals in 2021 (up 23% on 2020). Application software deals were in high demand accounting for 50% of all deals in the sector. Private Equity has continued its strong mandate of TMT acquisitions, with six PE backed deals.

Consumer

Reversing a four-year slide in deal volumes, the sector came back strongly in 2021 as restaurant, fast food and craft beer acquisitions returned to favour as Queenslanders
look to spend big on entertainment post lockdown. Brisbane’s Ballistic Beer increased their presence and production capacity with two acquisitions. Fast food and restaurant acquisitions were back on the menu with Dominos pizza entering it’s 10th market, acquiring the Taiwanese Dominos pizza chain (157 stores) for $80m.

Leisure

Continuing our theme for the year, the worst performing sector of 2020 (an all time low of 18 deals) has turned it around in 2021 with 30 deals. Investors have found value in smaller hotels and motels which have faced significant challenges over the last 24 months. Deal values were again significantly higher than the previous year, with the sector reporting deal values of $1.6bn, up 67% on 2020’s $546m.

Top deals included:

• The merger of Campervan companies Apollo Tourism and Tourism Holdings Limited, positioning the new group to take advantage of opening borders after being hit hard by Covid.
• $248m sale and leaseback of Star’s Tresury Casino and Hotel by Charter Hall Group; and
• Hotel Property investments five acquisitions of rural hotels and taverns, bringing it’s total holding to 56 pubs and hotels across Australia.

National & Interstate Expansion

With borders closed for much of 2021, interstate deals boomed with Queensland businesses selling at a ratio of 2:1 with their interstate counterparts (120 interstate buyers of QLD businesses to 60 QLD acquirers of interstate businesses)

Surprisingly, International interest increased with 56 deals, up from 41 in 2020 despite buyers being unable to put boots on the ground in ‘Fortress Australia’. Queensland businesses also acquired across international borders with 30 acquisitions in foreign jurisdictions (33 in 2020).

Initial Public Offerings

From an all-time low of two IPOs in 2019, and five in 2020, eight in 2021 saw Queensland IPO levels trend towards long term average of 10 per year.

After what was one of the hottest listings of the year skyrocketing from a listing price of 85 cents skyrocketing to $2.33 on its first day, Lithium-sulphur battery company Li-S Energy Limited’s share price cooled considerably, ending the year at 84 cents. The original offer size of $34m (implying a market capitalisation of $544m) was met with a closing market cap of $1.5bn at the end of the first day of trading, however it finished the year with a market cap of $919m.

The increase in listing activity is unlikely to slow down, with another four Queensland companies filing for IPOs in late 2021, or early 2022. One such aspirant is Microba life sciences, who counts among its strategic investors the Bill Gates-backed company Ginko Bioworks.

“Despite the storm clouds of inflation and labour and supply shortages on the horizon, M&A deals are not slowing down, at least in the short term. While the high equity valuations and low interest rate environment that helped support them may be facing some headwinds, the economic fundamentals that support dealmaking are still strong.