Research: Australia’s M&A boom shows no sign of stopping

20 February 2022 Consultancy.com.au 3 min. read
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After a record year for mergers & acquisitions, Australia’s deal boom shows no sign of stopping, according to a new report by Pitcher Partners and Mergermarket.

In 2021, pent-up demand for M&A and the low cost of debt fuelled dealmaking to historical highs. Total Australian deal value reached $306 billion, a 225% increase over 2020 ($94 billion). The most notable deals of the year were those involving Afterpay and Sydney Airport, which alone contributed over $60 billion to deal values.

Deal volumes however saw a slight dip in 2021, sinking to 927 deals against 963 the year previous.

Australian M&A

Globally, the picture was not much different. A January report by Bain & Company found that the global M&A market ended 2021 at all-time high with over US$5 trillion in deals. In particular financial sponsors gained ground, with both the private equity and venture capital segments seeing record activity.

Australia’s rosy outlook

According to the Pitcher Partners and Mergermarket report, the local M&A market will run rampant for a sustained period. Of the 60 dealmakers canvassed for the study, almost half (48%) think that current record M&A levels and positive market conditions will last another 12-24 months before reaching a peak. Another 28% say the peak won’t be reached for another two years.

How long will current record M&A levels and positive market conditions last before reaching a peak

“This predicted ongoing boom is underpinned by a ‘fear of missing out’ mentality where dealmakers feel the need to capitalise on market conditions and consumer sentiment to achieve their corporate objectives,” explained Warwick Face, a corporate finance partner at Pitcher Partners.

Many dealmakers point to accelerated digitalisation and the need for digital transformation, increasing globalisation and an increasing focus on environmental, social and governance (ESG) factors as key drivers of the M&A trend. Another theme that is emerging is the war for talent. “As many industries face talent shortages, business leaders are turning to M&A to fill gaps,” said Face.

Meanwhile, Australia’s boom is expected to see the local M&A market outshine all other markets in Asia Pacific. Almost all (97%) dealmakers surveyed say they are looking at deal opportunities in Australia in the imminent future, an increase from 84% the year previous. “This level of optimism is unparalleled across Asia Pacific,” said Face.

Where will you be looking for M&A opportunities within the next 12 months

Meanwhile, in the mid-market segment, 83% of dealmakers believe that Australia’s mid-market deal fundamentals are superior to those in other Asia Pacific markets.

James Beaumont, a corporate finance partner at Pitcher Partners said that Australia’s ability to remain economically stable throughout Covid-19 has contributed to its thriving investment environment. “Australia owes much of its appeal to the country’s economic stability and strong value prospects.”

The rosy economic outlook for 2022 is another strength. The latest projections from the International Monetary Fund (IMF) are for GDP growth of 3.5% in Australia in 2021, accelerating to 4.1% in 2022. Indeed, the IMF expects Australia to be the best performing advanced market in Asia over the next 12 months.

Did deals meet expectations of success measures

Adding to this, Face pointed at Australia’s favourable deals infrastructure: “Respondents gave Australia an 80% confidence score in the current environment for M&A activity, based on factors such as ease of doing deals and sourcing opportunities.”

Yet despite ongoing enthusiasm among dealmakers, the year ahead will not be without challenges, said Face and Beaumont. “Uncertainty caused by the ongoing pandemic, surging inflation, rising interest rates and geopolitical tensions may increase the valuation expectation gap between buyers and sellers. On the political front, both federal and state elections are due to occur in 2022.”