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Mid-market M&A levels to boom in 2022


The M&A boom in Australia shows no signs of slowing down with opportunities forecast to run rampant for another 12-24 months. Research shows that Australia’s thriving market can be sustained with Australia remaining one of the top destinations for M&A, outshining all other markets in APAC.

The eighth annual Dealmakers report from Pitcher Partners, produced in collaboration with Mergermarket, reviews M&A activity and canvasses dealmaker expectations for deal volumes, drivers, and opportunities in the Australian mid-market for 2022 and beyond. The research provides an inside look at shifts in sentiment compared to 2021, while unearthing dealmaker’s authentic expectations and predicted challenges for the year to come.

Key findings include:

  • Dealmakers rank current Australian M&A conditions 8 out of 10, comparable to last year’s result of 8.1
  • 83% of dealmakers believe that Australia’s mid-market deals are superior to those in other markets
  • 97% are looking for M&A opportunities in Australia and will continue to source deals over 2022
  • 52% say their most recent deals in Australia were opportunistic rather than strategic

James Beaumont Corporate Finance Partner at Pitcher Partners Melbourne said that Australia’s ability to remain economically stable throughout COVID-19 has contributed to its thriving investment environment.

“A majority (88%) of respondents plan to increase their investments in Australia’s mid-market, particularly in the private space, and I think that this is a result of the country’s economic stability and strong value prospects,” said James.

“There has been a growing focus on ESG with 90% of dealmakers placing importance on this factor when looking for investments. This has worked in Australia’s favour with 72% of respondents stating that ESG standards and reporting are better than our Asian Pacific competitors, and 40% identified a significant outperformance.

“We also found that because of COVID-19 there has been an acceleration in digital transformation leading to a 97% increase in deals within the TMT sector, up from 85% in 2021. This played into the strength of Australia’s mid-market which offers advanced technology and therefore more opportunities.”

Warwick Face Corporate Finance Partner at Pitcher Partners Brisbane said 2021 exhibited strong recovery with increased demand leading to the rapid incline in transaction values.

“Respondents gave Australia an 80% confidence score in the current environment for M&A activity, based on factors such as ease of doing deals and sourcing opportunities,” Warwick said.

“In 2021 we saw volumes take a slight dip, sinking to 927 deals, but completion values exploded to AU$305bn (2020: AU$94.2bn). This is a 225% increase from 2020, despite there being a 4% drop in the volume of deals from 963.”

From the survey, Australian dealmakers also predict:

  • Private equity deploying capital is predicted (72%) to be the main deal driver in the mid-market in 2022;
  • Increasing GDP growth has resulted in the International Monetary Funds (IMF) expectation that within the next 12 months Australia will be the best performing advanced market in Asia;
  • Valuation challenges involving asset pricing is expected to continue as uncertainty from the pandemic may increase the valuation expectation gap between buyers and sellers;
  • Strong mid-market growth is expected to continue in an upward trajectory, in line with overall M&A market expectations, which could see activity within the next two years to return to the highs experienced in 2016;
  • Energy, mining, and utilities will see an influx of divestment and restructuring transactions due to Australia’s work towards reducing greenhouse gas emissions; and
  • Consumer and Pharma sector deals are predicted to continue to spike the interest of investors, especially as Australia is one of the world’s top five markets for biotech innovation.

Warwick concluded by saying that pent up demand for M&A and the low cost of dealmaking over the past year will add to the growing urgency for dealmaking leading to an acceleration of deals, in both frequency and value, taking the M&A market to new highs.

“The acceleration of Australia’s M&A boom is being further fuelled by dealmakers ‘fear of missing out’ (FOMO) where they feel the need to quickly capitalise on current market conditions and consumer sentiment to achieve their corporate objectives. At this stage this indicates that this will only drive transaction volumes and values up in the year to come,” said Warwick.

“The Dealmakers report showed that despite there being some challenges involving valuation disparities between sellers’ expectations and buyers’ capacity, the induced urgency by dealmakers themselves will likely underpin a buoyant M&A market during 2022.”

The full report can be accessed here.

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