A report by HLB Mann Judd Sydney has revealed a lift in M&As from 1,191 to 1,207 between FY20 and FY21, as a result of an increase in business certainty around COVID-19.
“Although New South Wales and other states continue to experience lockdowns – which inevitably impact businesses – the initial shock of such challenges is now understood,” said HLB advisory partner, Simon James.
“Overall, businesses are better able to adapt to these circumstances and continue to operate as best as possible.”
As a result, he noted, there has been an increase in deal appetite in the Australian market.
“With the vaccine rollout continuing at pace in both Australia and around the world, we also expect the M&A market to produce deal numbers and values to be much higher in FY 22,” Mr James added.
The report noted that the number of transactions was relatively similar when comparing the years month-by-month, with the exception of March to June 2020, in which a noticeable dip in transactions was clocked when compared to the same period in 2021.
4Q21 saw 278 M&As, whereas 4Q20 only saw 225.
“This was peak uncertainty and to add to this, the average transaction size was lower in 2020 compared to 2021 during the same months,” Mr James said.
Furthermore, while the number of deals increased between FY20 and FY21, the average transaction size fell from $113.2 million to $88.6 million, largely as a result of redistribution in deal size, highlighting a paradigm of opportunism within unique market conditions.
“There were more deals in FY 21 below $5 million and less deals completed over $25 million,” he said.
“This may reflect opportunism as a result of the ongoing Covid-19 pandemic with companies keen to complete opportunistic smaller deals that presented themselves.”
On a sector-by-sector basis, it was found that the materials and information technology sectors saw a rise in the number of transactions during FY21, with the average transaction size about the same or lower compared to FY20.
The financials, telecommunications and utilities industries saw a boost in the average transaction size in FY21, leading Mr James to suggest that they may not have been as heavily impacted by the COVID-19 pandemic as others.
Looking ahead, the report highlighted expectations that the strongest M&A growth would be seen in healthcare, technology and agriculture.
“There are niches within each of these areas which investors are keeping their eye on as they are driven by research and innovation,” said Mr James.
“AgTech, with field robotics and farming, and FoodTech, where companies are creating lab-grown meat, are two such examples.
“In addition to this, supply chain disruption has been a notable impact of lockdowns, so anything connected with supply chain technology that makes it easier to move things around is expected to attract M&A interest in coming months.”