Value over volume as overseas buyers spend big on Australian companies

International corporate buyers have spent big on Australian firms in the first half of 2023, delivering the strongest six-month interval for offshore M&A values in five years.

Overseas buyers completed AU$64.8 billion of inbound deals in the six months to the end of June 2023, according to Pitcher Partners’ Dealmakers mid-year update.

It was a good news story for Australian business, with the highest half-year value for inbound M&A since 2018 and more than three times greater than the corresponding time in 2022.

Across all markets, foreign interest was led by North American dealmakers who contributed 77% of deal value as they explored opportunities in Australia’s rich technology sector, as well as mining and resources, finance and healthcare.

In the mid-market, interest was strongest among Asia Pacific buyers, who made up 44% of inbound deals by value, while North American and European buyers each delivered about 20% of deals.

The M&A picture was not as rosy for global dealmaking activity, with overall values down by 35% compared to the first half of 2022 and with a 37% slump in the mid-market.

Pitcher Partners Sydney Corporate Finance Partner Andy Hough said the global caution was likely due to the macroeconomic and geopolitical uncertainties affecting many parts of the world.

“It is the third consecutive drop in global M&A values across half-year periods, which reflects a continuing pessimism that is sapping the confidence of dealmakers in completing transactions,” Andy said.

“Investment plans rely heavily on certainty and in many global markets, inflation and labour pressures are stubbornly refusing to abate, which means little clarity around future investments.

“In Australia, the demand for our assets and resources remains robust, which is a credit to resilience of local businesses even as we face our own economic pressures, such as rising interest rates.

“However, M&A activity may start to be fuelled by increasing numbers of insolvencies and restructures, as underperforming businesses with heavy debt burdens are forced to reorganise and divest assets.”

Australian M&A values ticked up 13% compared to the first half of last year, although the $64.8 billion of transaction came from just 390 deals, 26% fewer compared to 2022.

The value figure was heavily influenced by the $30 billion Newmont Mining purchase of Newcrest Mining, which made up more than 45% of the total deal value in Australia during the first half.

Energy, mining and utilities made up 78% of deal value in the first half of 2023, and even without the inclusion of the Newcrest sale, the sector still made up 50% of total sales.

While values remain strong, Australian deal volumes were the lowest in more than five years, which Andy attributed to deals taking longer to complete than they did 12 months ago.

“Due diligence is becoming an increasingly drawn-out process, with factors such as ESG and increased regulatory burdens leading to a greater depth of scope,” Andy said.

“While that has negatively impacted on deal numbers in this half, it should result in an uptick of completed deals in the second half of the year.”

A strong stable economy, robust regulatory frameworks and abundant natural resources were again strong factors that made Australia a promising option for international investors.

Andy said the current deal lull could give way to a surge in M&A from both buyers searching beyond their home markets and domestic dealmakers ready to jump off the sidelines.

“Moving quickly will be key to succeeding in 2023 and beyond,” Andy said.

“Even amid political uncertainties and global market challenges, dealmakers who act now will be in a better position to withstand these external pressures and achieve their business objectives.”

Digital advancements are a growing sector as dealmakers are turning to the technology industry to bolster operations and build future growth.

Technology, media and telecommunications accounted for 25% of total deals in the first half of 2023 and is expected to see even higher growth moving forward.

The full report can be accessed here.