The energy is electric in Australia’s corporate market. Even as the global appetite for dealmaking is sliding backwards, foreign buyers remain hungry for Australian energy and resources, the top performing sector in the first half of 2023.
And what they want are the battery minerals that Australia harbours.
Merger and acquisition (M&A) values in Australia were up 13% in the six months to June 2023 to AU$64.8bn, compared to the same period in 2022, while global deal values dropped 35%. Energy, mining and utilities (EMU) was the top sector in the first half of 2023, accounting for 78% of deal values and 20% of deal volumes. It’s true that the value of Australia’s deals was influenced heavily by one deal in particular – the $30bn Newmont Mining purchase of Newcrest Mining that was completed in May. But even after Newcrest was removed from the equation, transactions in the EMU sector still made up 50% of the total M&A values. That speaks volumes about the attractiveness of Australian assets and is a strong indicator that corporate dealmakers are willing to make a deal because they see long-term value.
Australia’s energy space is undergoing a transformative shift towards decarbonisation and the expansion of renewables, with solar and wind power leading the way. The rapid growth of utility-scale renewables projects, coupled with declining costs and supportive government policies, has propelled the transition. That has led to rising investment in the market overall but particularly within the mid-market.
Decarbonisation is a primary part of many ESG strategies, which means the push to electrification will continue at pace, and in turn the dealmaking in this space is not expected to slow. Lithium and rare earths, and copper to a lesser extent, are the metals attracting the capital. In fact, the relative shallow deal volumes are likely to pick up simply because due diligence and transactions are taking longer to complete, and the delays have pushed them into the back half of the year.
Two other factors are also likely to keep M&A moving in EMU – distressed transactions, particularly involving companies at the smaller end of the market, and labour pressures. Interest rates and access to capital are being felt in the EMU sector as much as any other and many companies in the industry are surviving on their existing share base. As constraints continue to tighten, investors may seek M&A opportunities as an exit strategy or to pool resources and scale up.
Attracting labour to mining companies also continues to be a limitation, again often affecting the smaller and mid-market firms the most. Even if hires can be made, there is a dire shortage of housing in Australia’s regions and with the building industry also battling its own labour problems, solutions have not been forthcoming. These factors will create more buying opportunities, as underperforming businesses with heavy debt burdens are forced to reorganise and divest assets.
Despite these pressures, Australia is proving to be a strong and attractive market for corporate buyers with energy and technology in their sights.
At a time where worldwide M&A value has dropped for the third half-year in a row, Australia is bucking the trend. Australia’s ability to weather global economic shocks have cemented its reputation as a safe haven for dealmakers seeking diversification and long-term growth prospects. Our fundamentals remain unchanged: a stable economy and robust regulatory framework, and the demand for our abundant mineral resources show little sign of abating.
As the march towards decarbonisation and electrification continues around the world, the coming 12 months will be a very interesting time for dealmaking in the EMU sector.