Australia will continue to provide M&A opportunities, particularly in the technology space, with a Pitcher Partners report showing that dealmakers are hopeful the current uncertainty due to the COVID-19 global pandemic will be a short-term obstacle.
The annual Dealmakers report from Pitcher Partners, produced in collaboration with Mergermarket, reviews M&A activity and canvasses dealmaker expectations for deal volumes, drivers and opportunity sectors in the Australian mid-market in 2020 and beyond.
The half-year update revisits dealmakers from its full-year analysis published in February to see how sentiments have changed since the outbreak of COVID-19 earlier this year.
Key findings include:
- 42% of dealmakers are considering M&A into the Australian mid-market, with another 11% uncertain of their next move
- 70% say they may return to the Australian market within the next 12 months depending on how the pandemic and health crisis play out
- 57% anticipate a recession in Australia, compared to 90% who say a global recession is imminent
- 95% say capital deployed by private equity will be the top mid-market deal driver
- Deal sourcing (78%) and new/advanced tech opportunities (73%) are Australia’s top mid-market advantages
James Beaumont Corporate Finance Partner at Pitcher Partners Melbourne said the appeal of Australia as an investment environment remains clear, despite global economic contraction.
“M&A activity has slowed in the first half of the year, as it has around the world, with less than half (42%) of respondents anticipating completing deals in Australia during the year ahead, down from 65 per cent in January 2020,” Mr Beaumont said.
“With 78 per cent of dealmakers having postponed or cancelled investments into Australia in the wake of COVID-19, there is no doubt investment confidence has been badly shaken.
“However, there is an expectation that the uncertainty created by COVID-19 will be a brief stumbling block and most dealmakers will consider returning to the market within the next 12 months, depending on how the pandemic plays out.”
Australia’s fundamentals create a significant incentive for investors with respondents recognising Australia’s key advantages that set it apart and make it a competitive market.
Warwick Face Corporate Finance Partner at Pitcher Partners Brisbane said, “Investing in Australia is still viewed as relatively low risk compared to other regional markets, and despite the current economic challenges, Australia’s political certainty and underlying fundamentals are likely to see it remain an attractive environment for dealmakers.”
As for where M&A will occur in the remainder of the year, 90 per cent of respondents believe the technology, media and telecommunications space is set to see an increase in deals. Followed by 75 per cent of respondents foreseeing ongoing opportunities in pharmaceutical, with 63 per cent believing there may also be increases in the industrial and consumer sectors.
Despite these market positives, many dealmakers also foresee recession as a challenge for the near-term. More than half (57%) say a recession in Australia is likely, however, 90% say a global recession is imminent, showing that Australia’s resilience may allow it to navigate out of choppy economic waters sooner than expected.
Whilst Australia will not be immune to any global slowdown, it is positive that the current sentiment is that the structure of our economy will see a smaller contraction than the rest of the world,” Warwick said.