Australia’s large cap and mid-market M&A landscape slows

28 August 2022 Consultancy.com.au 4 min. read

Pitcher Partners and Mergermarket have released their mid-year analysis of Australia’s mid-market M&A landscape, finding that both buyers and sellers have adopted a more cautious approach to mergers & acquisitions. A roundup of the key findings.

M&A in the mid-market experienced notable declines in activity, with values down 42% and volume down 28% from the second half of 2021.

Australia mid-market M&A

The mid-market space experienced similar declines to Australia’s broader M&A market, which noted 29% less deals (359 deals) compared to the previous corresponding half year. The total value of deals, however, was up 6% to $88.3 billion, thanks largely to the $28 billion takeover of Ramsay Health Care by global investment consortium KKR.

Australia mid-market M&A

“The data from indicates it has been a rocky start for M&A in the first half of 2022,” said Michael Sonego, a partner at Pitcher Partners.

“The plunge in M&A volume is a big turnaround from dealmakers’ predictions at the end of last year, with most anticipating record levels of activity to continue throughout 2022 and beyond.”

Sonego said it was clear M&A activity in the first half of 2022 had been impacted by a relentless series of macroeconomic shocks, beginning with Russia’s invasion of Ukraine and compounded by continuing supply chain pressures, skyrocketing global inflation and rapidly rising interest rates heightening concerns of a possible recession.

Global M&A

“Both buyers and sellers had become used to pandemic volatility, but the wave of unexpected threats this year — from Ukraine to monkeypox and foot-and-mouth to inflation, an energy crisis and a possible rate rise-driven recession — has rattled them again,” he said.

Globally, deal volumes declined from nearly 19,000 transactions in the first half of 2021 to close to 16,000 for the past six months, while deal value dropped by some $700 million.

Deals by size

The mid-market continues to be a hotbed of M&A, according to the report by Pitcher Partners and Mergermarket, accounting for around 34% of all deals in the first half of 2022. Meanwhile, large cap deals have helped propel M&A values. With 43 deals, the first half of 2022 was one of the highest first halves for transactions valued above $250 million and accounted for 12% of deals for the period.

Deal size analysis

Foreign (investors)

Australia has maintained its attractiveness among foreign buyers, with overall inbound M&A accounting for almost 40% of total deals in Australia in the first half of 2022 (in line with percentages before the pandemic).

Domestic dealbound comparison

“Although volume declined by 23% in the mid-market, the segment remains a value centre possibly as foreign buyers recognise Australia’s strong fundamentals compared to other markets in Asia Pacific,” said Sonego.

Overall private equity deals rose markedly to hit $31 billion – although excluding the $28 billion Ramsay deal that number drops significantly to only S3 billion. Total private equity deals, however, dropped to one of the lowest levels in recent years. Financial investor activity in the mid-market also dropped from record highs last year, “now settling into familiar territory seen both before and slightly after the pandemic,” stated Sonego.

Mid-market PE deals

The outlook

Looking ahead, the report states that despite the drawback in deal activity, dealmakers are confident that Australia’s strong economic fundamentals should underpin a rebound. Sonego: “Sentiment is a significant factor in M&A and it was artificially high in Australia. Once the market gets used to the latest round of uncertainty, it will likely recover.”

“Dealmaking isn’t really in decline, but the dramatic acceleration we saw last year has now fallen away and we are back to a more sustainable pace. If 2020 was the year of the earn out and 2021 was the year of the seller, 2022 represents a shift back to somewhere in between.”