M&A in Australia delivered record results for the first three quarters of 2018, with 903 deals valued at AU$117.9bn. While the year-on-year uptick was magnified by several megadeals (with 17 valued above the AU$1bn mark), momentum has been driven by the country’s strong economic fundamentals and continued investor confidence to do deals.
Billion-dollar deals aside, Australia’s mid-market – deals valued between AU$10m and AU$250m – continued to buttress dealmaking in volume terms, accounting for 72% of transactions and posting another quarter of positive growth in deal volume and value terms.
These findings were part of Pitcher Partners’ research into mid-market dealmaking, presented in an exclusive newsletter Dealmakers: Australian mid-market M&A Q3 2018 update, released today in collaboration with M&A intelligence provider Mergermarket, an Acuris company.
International interest has contributed to healthy deal flow in the mid-market for the year. After several flat quarters, buyers from North America returned to lead inbound M&A. This aligns with expectations from research conducted earlier this year and published in Dealmakers: Mid-market M&A in Australia 2018, where 83% of foreign and domestic investors said North American buyers would show the most interest in Australia’s mid-market throughout 2018. Another notable trend among foreign dealmakers has been the precipitous decline of Asian buyers, with those from China and Japan scaling back acquisitions over the past seven quarters.
According to Michael Sonego, Partner in Pitcher Partners’ Corporate Finance division, “Interest in Australian assets is intensifying, particularly among North American buyers due in part to structural similarities in business practices and analogous levels of sophistication. Australia and North America have a long history of doing business, which lends greater confidence and certainty to both parties when transacting.”
Private equity and venture capital (PE/VC) has also contributed to dealmaking in Australia. There were 29 deals valued at AU$2.3bn in Q1-Q3 2018, a 24% decline in deal volume but an uptick of 18% in value terms. Additionally, 46% of participants in PE/VC investments were from foreign funds, exemplifying international interest in the Australian market.
“Globally, the availability of investment funds is presently high, with investors seeking quality assets in which to deploy their funds. The rise of inbound investment from North America, driven by strong competition among North America’s 2,500 PE firms, has led to a valuation increase for Australian assets, creating increased competition for Australian PE firms,” said Mr. Sonego.
In terms of hot sectors, the Consumer, Leisure and Pharma, medical and biotech industries accounted for the most deals in Q1-Q3 2018. Financial services, TMT and Real estate sectors saw the most year on year growth from Q1-Q3 2017.
“TMT activity has increased significantly this year, driven by momentum in technological innovation, as well as changes to Australia’s media landscape. We expect this sector to continue to perform well into 2019 as new media partnerships are formed and the tech sector continues to seek expansion capital,” said Mr. Sonego.
Additional M&A data trends from Mergermarket show that in Q1-Q3 2018:
- Overall Australian M&A rose from 805 deals in Q1-Q3 2017 to 903 in Q1-Q3 2018, with total deal values likewise increasing from AU$67.8bn to AU$117.9bn in that same timeframe;
- Foreign investors accounted for 36% of deals and 44% of deal value;
- North American bidders accounted for 31% of deal volume and 35% of deal value for foreign buyers in the mid-market, followed by European bidders at 18% volume and 21% value;
- Overall, foreign inbound mid-market M&A decreased 14% by volume and 2% by value from the same period in 2017;
- Aside from energy, mining and utilities, the top mid-market target sectors were consumer (11.4% of mid-market M&A volume), leisure (11.4%) and pharma, medical and biotech (11%);
- Private equity and venture capital deals totaled 29 deals worth AU$2.3bn, declining 24% by volume and increasing 18% in value from Q1-Q3 2017.
Access the full report here.