67% of survey respondents expect mid-market M&A in Australia to increase in 2019, with 33% saying it will remain unchanged from current activity
92% expect increasing private equity deals and 90% say the same for foreign inbound M&A in the next 12 months
95% of dealmakers say that, generally, the upcoming federal election will have either no impact or a positive impact on mid-market M&A, although 30% note that a change in government could have a potentially negative impact on this M&A
North American dealmakers are expected to be the most active foreign buyers in Australia’s mid-market in 2019, according to 98% of respondents
Australian M&A concluded another healthy year of growth, rounding out 2018 with deals increasing 5% and dollar values rising 34%. The AU$164.1bn in deals capped a new record not seen since 2015 and all signs point to another year. M&A growth will likely come from deals done in the mid-market – transactions valued between AU$10m and AU$250m, which accounted for 70% of deals in 2018.
Indeed, according to dealmakers surveyed to gather sentiments on the trends and challenges shaping Australian M&A, 67% say mid-market M&A will increase in 2019. The remaining 33% say it will remain unchanged from current levels.
The findings are part of research conducted by Pitcher Partners in our fifth annual M&A report, Dealmakers: Mid-market M&A in Australia 2019. This year’s report once again surveyed various domestic and international dealmakers to gather their insights and opinions to help paint a portrait of expectations for deal volumes, drivers and opportunity sectors in 2019 and beyond.
In line with respondent sentiment towards the key drivers of mid-market M&A in Australia, Partner Michael Sonego says, “Australia’s economic stability combined with the level of private equity funds, both from domestic and international players, and strong corporate balance sheets has led to there being plenty of buyer activity to consider assets as they come to market.”
A key question on the mind of many dealmakers is the impact the upcoming federal elections will have on M&A dealflow. While 95% say that, generally, the elections will have either a positive impact or no impact at all, 30% note that a change in government could have a potentially negative impact on M&A. Regarding these findings, Sonego says, “Federal elections have historically always caused a slowing of M&A activity as both buyers and sellers wait for a clear view as to what the future will hold. Current pipelines of work and activity levels would suggest that if there is to be a slow down this year it will be limited to Q2 and the lead up to the election. Currently the policies of the major parties aren’t causing major concerns to dealmakers considering a transaction and we’d expect that any dip will recover following the election.”
Highlighting another key finding, Sonego also commented on the impact of foreign investment into the mid-market, particular from North American bidders, which 98% of respondents expect to increase their dealmaking in 2019.
“We are continuing to see strong interest from North America for Australian assets. This continues to be driven by Australia’s stability and lower pricing when compared to other global markets. European interest in Australia has increased over the past year and it looks like this will remain throughout 2019 driven partially by Australia’s attractive investment conditions and also the uncertainty in their local markets with Brexit.”
Overall, 90% of respondents say foreign inbound mid-market M&A will increase in the year ahead, a figure complemented by the 92% who say the same for private equity. On these trends, Sonego says, “The strong interest being shown from foreign investors, private equity and corporates is reflective of the strength and current activity levels in the Australian M&A market where there is plenty of demand for good quality assets.”
From the survey, Australian dealmakers also predict:
Increasing inbound mid-market M&A from North Asia (77%) and Japan and the UK (42% each);
TMT sector will see the most activity in the year ahead (according to 100% of respondents), followed by consumer goods and financial services;
Deal challenges from volatile equities markets (70%), delays in government approvals for foreign investment (52%) and valuations (45%) posing the greatest challenges for mid-market dealmakers
Outbound M&A set to increase (according to 48%) with investments most likely into North America (73%), North Asia (70%) and South Asia (60%).
M&A data trends show us that in 2018:
The top mid-market target sectors in Australia for 2018 were energy mining and utilities (22% of mid-market M&A volume), leisure (12%), and consumer (11%);
Mid-market M&A accounted for 70% of all deals in Australia in 2018;
Foreign inbound mid-market M&A accounted for 38% of deals and 45% of deal values in 2018;