Energy sector shaping the Australian M&A landscape

The energy, mining and utilities (EMU) sector accounted for almost 80% of merger and acquisitions (M&A) values in Australia across the first half of the year, boosted by Newmont’s $30bn takeover of gold miner Newcrest in May.

The transaction – Australia’s biggest gold mining deal – drove the total value of M&A past $38bn for the six months to June 2023, according to an update to Pitcher Partners’ Dealmakers report.

The mid-year update monitored 390 mid-market M&A transactions over the first half of 2023, at a collective value of $64.8bn.

Even without the Newmont megadeal factored in, the EMU sector still made up more than 50% of M&A values and 20% of deal volumes, as Australia’s transformative shift towards decarbonisation and the expansion of renewable minerals gathers momentum.

Pitcher Partners Sydney Corporate Finance Partner Andy Hough said that growth has been fuelled by falling input costs and supportive government policies, which has fast-tracked investment in both Australia’s mid-market and more broadly.

“The energy market has flipped in the past six to 12 months, energy is definitely back in vogue,” Andy said.

“The pressure on input prices has eased, and wholesalers have been able to pass on more costs to the end retailer, so they are back making money which is good news for the energy transition.

“The coming 12 months will be a very interesting time for the sector.”

As Australia’s energy undergoes a transformative shift towards decarbonisation, and a greater concentration of solar and wind power, the expansion of renewable is also fuelling activity in the mining sector.

Andy said the capacity for some businesses to absorb the cost of higher interest rates is also being tested, which will lead to more activity.

“The rapid growth of utility-scale renewables projects, coupled with declining costs and supportive government policies, has propelled the transition,” Andy said.

“That has led to rising investment in this industry in the market overall but particularly within the mid-market.

“However, we also see an increased likelihood of rising insolvency and restructures.

“This will create more buying opportunities in energy but also the mining sector, as underperforming businesses with heavy debt burdens are forced to reorganise and divest assets.”

Across all sectors, foreign inbound deals to Australia have shown a notable upward trend, driven largely by Asia-Pacific corporate interest.

Offshore buyers completed AU$48bn in overall inbound deals in 1H23, the highest first-half for values in five years.

North American dealmakers have led the inbound charge, responsible for 77% of value, with investors exploring opportunities in Australia’s rich technology sector, as well as mining and resources, finance and healthcare spaces to expand their global footprint.

Among the mid-market, the Asia-Pacific region contributed 44% of the total inbound deal value, which reached $3.8bn, also a five-year high.

Key influences including Australia’s favourable location to important markets and resource rich industries, and the trends indicate the potential continued growth in deal volumes in the second half of 2023.

“Interest in Australia is being driven by a stable economy, strategic geographic location, attractive investment environment and abundant resources,” Andy said.

The full report can be accessed here.