A total of 359 Australian mergers and acquisitions (M&A) were completed in the first six months of this year, representing a fall of 29 per cent on the previous corresponding half year.
Data released by Pitcher Partners and Mergermarket indicated that the total value of deals over the period increased by 6 per cent to $88.3 billion, but this was largely due to KKR’s $28 billion takeover of Ramsay Health Care.
While dealmakers surveyed late last year had predicted that earlier record levels of activity would continue in 2022 and beyond, Michael Sonego from Pitcher Partners stated that the recent fall in M&A volume has put the market on a steadier footing.
“Dealmaking isn’t really in decline, but the dramatic acceleration we saw last year has now fallen away and we are back to a more sustainable pace,” he said.
“If 2020 was the year of the earn out and 2021 was the year of the seller, 2022 represents a shift back to somewhere in between.
“We had 18 months of phenomenal M&A conditions, but that boom could not be sustained in the face of renewed uncertainty.”
Of the dealmakers surveyed by Pitcher Partners, nearly half said they expected that previous all-time highs would continue for at least 12 to 24 months and a further 28 per cent predicted they would last for longer than two years.
However, this was before a range of new challenges emerged in the first few months of 2022.
“Both buyers and sellers had become used to pandemic volatility, but the wave of unexpected threats this year — from Ukraine to monkeypox and foot-and-mouth to inflation, an energy crisis and a possible rate rise-driven recession — has rattled them again,” said Mr Sonego.
“Sentiment is a significant factor in M&A and it was artificially high in Australia. Once the market gets used to the latest round of uncertainty, it will likely recover.”
Mr Sonego suggested that dealmakers are now prioritising quality over speed and seeking out deals that closely align with their strategic objectives.
This is expected to result in a stronger second half of the year dominated by mid-market deals valued at between $10 million and $250 million, which Mr Sonego said would be driven by both domestic and international buyers.
“Australia will continue to offer abundant investment opportunities,” he predicted.
“As competition for assets heats up, dealmakers who act today will be ahead of the curve and ready to reinvest in growth or access new markets to future-proof their organizations against the uncertainties and challenges that lie ahead.”
