Pitcher Partners’ research into mid-market dealmaking, presented in an exclusive newsletter ‘Dealmakers: Australian Mid-market M&A Q1–Q3 2018’ update, was released this week in collaboration with M&A intelligence provider Mergermarket, an Acuris company.
The report found that M&A in Australia delivered “record results” for the first three quarters of 2018, with 903 deals valued at A$117.9 billion.
“While the year-on-year uptick was magnified by several megadeals (with 17 valued above the A$1 billion mark), momentum has been driven by the country’s strong economic fundamentals and continued investor confidence to do deals,” the report noted.
Billion-dollar deals aside, Australia’s mid-market – deals valued between A$10 million and A$250 million – continued to buttress deal making in volume terms, accounting for 72 per cent of transactions and posting another quarter of positive growth in deal volume and value terms.
International interest has contributed to healthy deal flow in the mid-market for the year. After several flat quarters, buyers from North America returned to lead inbound M&A.
“This aligns with expectations from research conducted earlier this year and published in ‘Dealmakers: Mid-market M&A in Australia’, where 83 per cent of foreign and domestic investors said North American buyers would show the most interest in Australia’s mid-market throughout 2018.
“Another notable trend among foreign dealmakers has been the precipitous decline of Asian buyers, with those from China and Japan scaling back acquisitions over the past seven quarters,” according to the report.
Michael Sonego, partner in Pitcher Partners’ Corporate Finance division, said interest in Australian assets is intensifying, particularly among North American buyers due in part to structural similarities in business practices and analogous levels of sophistication.
“Australia and North America have a long history of doing business, which lends greater confidence and certainty to both parties when transacting,” he added.
Private equity and venture capital (PE/VC) also contributed to dealmaking in Australia. There were 29 deals valued at AU$2.3 billion in Q1-Q3 2018, a 24 per cent decline in deal volume but an uptick of 18 per cent in value terms. Additionally, 46 per cent of participants in PE/VC investments were from foreign funds, exemplifying international interest in the Australian market.
“Globally, the availability of investment funds is presently high, with investors seeking quality assets in which to deploy their funds. The rise of inbound investment from North America, driven by strong competition among North America’s 2,500 PE firms, has led to a valuation increase for Australian assets, creating increased competition for Australian PE firms,” Mr. Sonego said.
The consumer, leisure and pharma, medical and biotech industries accounted for the most deals in Q1-Q3 2018. Financial services, TMT and Real estate sectors saw the most year on year growth from Q1-Q3 2017.
“TMT activity has increased significantly this year, driven by momentum in technological innovation, as well as changes to Australia’s media landscape. We expect this sector to continue to perform well into 2019 as new media partnerships are formed and the tech sector continues to seek expansion capital,” Mr. Sonego said.
The report found that foreign investors accounted for 36 per cent of deals and 44 per cent of deal value.
North American bidders accounted for 31 per cent of deal volume and 35 per cent of deal value for foreign buyers in the mid-market, followed by European bidders at 18 per cent volume and 21 per cent value.