Despite ongoing geopolitical uncertainty and a tightening economy, the Australian M&A market is predicted to rebound in the year ahead, according to Corrs Chambers Westgarth’s M&A 2023 Outlook report.
As valuations and share markets settle, the M&A 2023 Outlook predicts deal activity will rebound in mid-2023. Australian M&A activity will be bolstered by tight competition and strong offshore bidder interest, supported by the AUD exchange rate disparity and growing environmental, social and governance (ESG) considerations.
Corrs’ detailed examination of the Australian M&A market draws on data taken from the firm’s proprietary database of transactions, combined with in-depth research for the 12-month period ending 30 September 2022.
According to Corrs’ Head of Corporate Sandy Mak: “Following a bumper year of M&A in 2021, deal making slowed this year as uncertainty increased and interest rates rose. To quote a friend, ‘flat is going to be the new up’, until valuations find steady ground, with an M&A rebound anticipated mid-year.
“Looking forward to 2023, we anticipate structured M&A to become more dominant, continuing the increased use of bespoke deal structures to bridge gaps between buyers and sellers.
“We also expect strategic acquirers to be more prevalent and successful in 2023, with previously ‘out-of-favour’ sectors offering interesting M&A opportunities in the Australian market,” Ms Mak said.
Commenting on the findings, Adam Foreman partner at Corrs, said: “In the current environment, deals are getting more and more complex. We see engagement with major shareholders as now being a ‘must’ rather than a ‘nice to have’.
“Bidders have a range of structures they can use to create greater deal certainty and bring boards to the negotiating table. But one of the lessons of the last 12 months is that getting the timing, approach and form of that arrangement right is critical.”
Other key trends identified in the M&A 2023 Outlook include that:
- deal success rates are back to over 80%, returning to pre-COVID levels;
- overall deal volumes remain elevated, bolstered by highs of 2021 activity. 43% of all deals were announced in the first quarter (October to December 2021) and just 16% of deals in the last quarter (July to September 2022), demonstrating a clear slowdown in activity;
- strong competition for assets and an evolution in the M&A ‘playbook’ has resulted in bidders needing to boost their initial offer by an average of 12.86%. Comparatively in 2019, bidders had to boost the price by an average of 1.82%. Price bumps were a feature of 35.70% of deals in the survey period;
- ESG as a driving force of M&A activity, including divestments and disposals driven by shareholder activism and regulatory pressure; and
- Australian bidders continued to dominate activity, accounting for 65.57% of all activity. This represents a significant shift from 2011, where just 39% of bidders were Australian. More than 70% of foreign bidders were also from jurisdictions which form part of the Five Eyes intelligence alliance, which may reflect an increased focus by Australian regulators on national security.