Over the past few years, the world has faced ongoing geopolitical uncertainty in the wake of Brexit, the US-China trade war and the global economic slowdown. Events like these increase risks for businesses, usually resulting in organisations putting major investments and decisions on hold until certainty returns to the market.
Despite the current period of prolonged uncertainty, global merger and acquisition (M&A) activity remains strong as businesses search for growth opportunities.
The current climate is high in risk for businesses, but these risks are also creating opportunity. The latest Global Dealmakers report from Baker Tilly International has highlighted a recent uptick in cross-border activity.
Experts say we can expect this growth to continue as buyers look for new investment destinations that offer shelter from some of the current geopolitical. Naturally, Australia is a prime target.
In 2018, Australia’s M&A activity was valued at US$88 billion (A$127 Billion) accounting for just 3 per cent of global M&A volume. While this is a small proportion of global deal volume, the report found that 40 per cent of respondents to the survey are eyeing Australia as a cross-border investment target in the coming 12 months.
Aside from our low geopolitical and macro-economic risks, a key driver for increased M&A appetite is the value of the Aussie dollar, which weakens against most other OECD currencies.
Australia’s economic and political stability provides an investment-friendly environment for international capital. 94 per cent of companies and investors responded favourably to the Australian market, citing our positive economic outlook, political stability and legal certainty as key factors.
While our infrastructure was deemed reliable by 98 per cent of respondents, fewer were confident about the availability of skilled labour to grow this sector, and many predicted an increased competition for assets in the year ahead.
Pitcher Partners’ Michael Sonego says global dealmakers are contending with a range of macro and technical challenges in cross-border transactions. Regulatory hurdles stood out as the biggest deterrent to M&A globally, but here Australia does comparatively well.
“Australia is seen as an easy market to enter and do business with,” he explained.
“Distance is no longer the issue that it was or was perceived to be, there is more stability in our governments now that we’ve made it more difficult to replace a Prime Minister, and our valuations are cheaper than the US and Europe.”
Another key challenge to M&A is the due diligence process, which can put deals at risk of falling over. Due diligence processes usually focus on legal, compliance and tax considerations, but increasingly environmental, political and commercial factors are also required.
Despite these complex processes, there is confidence that the mid-market will remain the most attractive to global business.
Mid-market transactions, which usually range from US$15 million (A$21.7 million) to US$500 million (A$723 million), generally present an opportunity to invest in mature, successful organisations which have a strong comprehension of local macro and technical challenges.
This is particularly true in developed countries like Australia. Over half of global dealmakers expect the mid-market to receive the lion’s share of forthcoming M&A activity in 2020.
Baker Tilly International has prepared a dynamic infographic that displays some of the key findings in the Global Dealmakers report.
Do not hesitate to contact any of the specialists below to discuss your own situation or ambitions surrounding the growth or succession of your own business.