Bain: Australia's M&A industry drops to pre-pandemic levels

05 February 2023 Consultancy.com.au

In line with global trends, Australia’s mergers & acquisitions industry declined sharply in 2022, according to research by global strategy consulting firm Bain & Company.

The year 2022 was a tale of two halves for the global mergers & acquisitions (M&A) scene. After a blockbuster 2021 for mergers & acquisitions (when total deal value hit a staggering US$5.9 trillion), dealmaking activity cooled down significantly in the second half of the year, with many large deals going on pause while smaller deals slowed.

Overall, global M&A activity stalled at US$3.8 trillion in 2022, with deal volume also seeing a double-digit drop.

Global M&A deal value fell by 36% in 2022

In Australia, the picture was not very different. Total deal value fell by 52% to AUD 140 billion (US$98 billion) in 2022, down from 2021’s high of AUD 293 billion (US$205 billion).

“In comparison to global deal value, which declined by 36%, this suggests that Australia’s deal markets may have been more heavily impacted in 2022,” said Mark Judah, a partner at Bain & Company in Australia. “Australian deal volume also fell by 36% in 2022, compared to a 12% decrease globally.”

Deal value declined across all major industries in Australia, with energy and natural resources the largest driver, making up 38% of total deal value. According to recent other Bain research, within the segment, acquisitions to advance energy transition represent 27% of all deals in energy and natural resources worldwide, up from 21% in 2021.

Australia M&A deal market value (in billions of US dollars)

Meanwhile, the global survey also found that 80% of leaders in the energy industry are evaluating separating or spinning off parts of the business, as they re-align their business models to a growingly competitive landscape, and net zero future.

Australian deal value in the second largest segment by value but largest in volume, advanced manufacturing & services, nosedived by 65% in 2022. The financial services and technology sectors accounted for over a quarter of all deals by volume.

The number of deals closed by corporates (‘strategic deals’) dropped by around 40 to just over 80 transactions, while deal value was down 36% from the year previous, ending at US$82 billion (around pre-pandemic levels). Similarly, deals closed by private equity firms and venture capitalists also dropped from a record high in 2021.

Australia Market Overview

“The declines seen in Australia demonstrate the market is returning to pre-pandemic levels from the record-breaking highs of 2021, which is a theme we are seeing across geographies,” said Judah, with the Middle East one of the few bright spots.

Further reading: Global private equity industry preparing for choppy waters ahead.

The outlook

Looking ahead into 2023, Bain & Company’s experts said that the market is likely to see increased dealmaking, as corporates and financial investors look to seize opportunities in an uncertain market.

“Based on what we know from past economic down cycles, we anticipate ample opportunity in 2023 for well-prepared acquirers to make bold, strategic moves,” said Katrina Cuthell, a partner at Bain & Company in Australia. Bain & Company analysis of deal activity during the 2008-2009 downturn found that companies who during this period were active in M&A financially outperformed those that sat on the sideline in the decade that followed.

Dealmakers are however advised to be more cautious in their assessment phase. Cuthell. “In our experience, we’ve found that in the face of uncertainty, proactive, deeper due diligence can deliver a competitive advantage in the speed and quality of deals done.”

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