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Survey: Australia tops list among international investors searching for mid-market deals

Survey: Australia tops list among international investors searching for mid-market deals

Dealmakers predict increasing M&A through 2020 given dynamic market opportunities and Australia’s unique advantages in growth, legal environment and innovation.

  • 90% of dealmakers say they will look to Australia for investment opportunities in the year ahead, compared to 73% who said the same for emerging Southeast Asia and only 27% for China
  • 64% of dealmakers say they will increase investment into the Australian mid-market in the year ahead – and all had made previous such investments in the past
  • Inbound investment and activity from foreign dealmakers will be the top deal driver (according to 75% of respondents), although favorable valuations (73%) and capital deployed by private equity (72%) will also factor into activity
  • Political and regulatory stability and low risk are Australia’s strongest advantages, according to respondents

Australia ranks as the top investment destination among dealmakers within Asia Pacific and globally, outshining many of Asia’s more popular, high-growth emerging markets. This is particularly true of investor intentions regarding mid-market deals (those valued between AU$10m and AU$250m) in the country.

In a new study on investment into Australia, 90% of those surveyed say Australia is their top choice as they search for mid-market opportunities and a reliable market to make acquisitions. Only 73% said the same regarding emerging Southeast Asia and even fewer say they are planning to invest in China (27%) in the year ahead.

Indeed, appetite for Australia assets continues to grow and 65% of dealmakers say they are considering further acquisitions following previous, success deals. Another 30% are unsure of their next move but highlight Australia’s positive fundamentals – strong economic growth, a transparent and robust regulatory/legal system, and innovative ecosystem across industries – as possible draws for future investment.

These findings are part of research conducted by Pitcher Partners in its sixth annual M&A report, Dealmakers: Mid-market M&A in Australia 2020. This year’s report, produced in collaboration with M&A intelligence provider Mergermarket, an Acuris company, once again surveyed various domestic and international dealmakers to gather their insights and opinions to help paint a portrait of expectations for deal volumes, drivers and opportunity sectors in 2020 and beyond.

As mentioned above, Australia’s fundamentals create a significant incentive for investors, particularly foreign corporations and international PE firms, to target the country. Respondents point to political and regulatory stability and a sound legal system as key advantages, alongside the relatively low risk environment, favorable valuations and the country’s culture of innovation.

Michael Sonego Corporate Finance Partner at Pitcher Partners Melbourne said the appeal of Australia as an investment environment was clear.

“This is due to our robust economy, sound fundamentals, dynamic industries and links to key global markets,” Mr Sonego said.

“Importantly, the report shows that those who have previously invested in Australia are more likely to invest again, with 65% of the dealmakers in our research this year considering further acquisitions in Australia.

“Another 30% said that while they are unsure of their next move, they noted that Australia stands high on their list of target destinations.”

Looking to the year ahead, respondents say foreign dealmakers will play a key role in driving mid-market M&A. This sentiment remains consistent with opinions from last year and is illustrated by the large volume of inbound deals in the mid-market mix: foreign buyers participated in 29% of mid-market deals in 2019, with foreign capital accounting for 32% of deal values. These foreign buyers are expected to remain active in the market into the year ahead, with 78% of respondents saying inbound mid-market M&A will increase.

The survey findings also reveal that Chinese (and other North Asian) buyers alongside North American and Japanese investors will lead the charge of foreign investment.

“The stability Australia offers only becomes more important as each year ticks by, with trade disruption, political instability and now external threats such as the economic contraction led by coronavirus,” Mr Sonego said.

In terms of industry opportunities, respondents say TMT and tech deals will yield the most value. However, services-based industries are also gaining traction, with pharma, medical and biotech and consumer sectors also tapped to see increasing levels of mid-market M&A.

“There has been a lot of increased interest in the medical sector given the ageing population,” Mr Sonego says.

“We are seeing roll-ups in radiology, aggregation in dentistry and interest in allied care and we would expect to see that continue into the foreseeable future.”

While opportunities – in the mid-market and overall – may be abundant, respondents also highlighted several challenges investors are likely to face in 2020. The rise of social and environmental activism/unrest is one of the main obstacles, according to 50% of respondents.

Mr Sonego says summer bushfires, which have raged in all states, are already acting as a wake-up call for businesses across sectors.

While some will look to divest risky or devalued assets, others will be looking for ways to invest in green businesses or make acquisitions that can improve public perception of their environmental performance.

“There are going to be implications across sectors for business, ranging from whether they are perceived in public and by the business community as doing the ‘right thing’ by the environment, to those who are looking ahead at what policy changes might come into place after the fires,” Mr Sonego says.

“The more people are exposed to the impact of climate change, the greater the pressure for the economy to transition and that will mean heightened deal activity.”

From the survey, Australian dealmakers also predict:

  • US-China trade tensions and UK Brexit situation will have a positive impact on inbound investment into Australia as investor search for a safe haven market
  • Increasing competition for assets is expected, according to 60% of respondents, as foreign and domestic investors search for opportunities
  • Corporate buyers will lead this race for assets, according to 100% of respondents, although Australian PE firms (92%) and international PE firms (39%) will also participate
  • Outbound M&A will also be a theme in 2020 as Australian firms look to mid-markets in Southeast Asia (63%), North Asia (58%) and South Asia (52%) for deals
  • Deal success rates were high among respondents this year, with 77% saying their most recent transaction in Australia was successful
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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