PwC Australia has predicted that short-term macroeconomic headwinds and financial volatility will spook some stakeholders in the M&A space over the coming year.
However, in the first instalment of its Australian M&A Outlook 2023: Industry insights series, the firm said that a closing of the valuations gap, a more considered bidding field, and a subdued initial public offering (IPO) market means that strategic acquisitions will generate high returns.
“These conditions create a once-in-a-decade opportunity for investors, but agility will be crucial,” said PwC Australia’s deals business leader, Rob Silverwood.
“Dealmakers will need to find ways to convince boards, committees, and other stakeholders of new investment opportunities, with defensible and financially stable sectors the hot ticket items.”
PwC noted that Australian M&A activity slowed in 2022 from the record-setting highs of 2021 but continued to exceed historical norms, with 2022 ranking as one of the strongest years ever.
A total 1,699 deals were announced locally in 2022, down from 2,118 in 2021, while publicly disclosed deal values reached more than $78 billion, from almost $195 billion a year earlier.
According to the firm’s outlook, there are reasons for optimism in the M&A space, particularly as inflation and interest rates are both expected to peak this year.
“While global business sentiment may dampen as a result of impending recessions in the UK and US, investors will likely turn to Australia’s safer shores to spur market activity,” said Mr Silverwood.
“Similarly, COVID-19 caused a refocus on supply chain resilience, leading to a surge in Australian manufacturing sovereignty. Essential sectors such as healthcare, education, defence, energy transition, and infrastructure will be attractive for investors, particularly when coupled with defensible assets such as IP patents and the ability to pass on costs.”
PwC has identified five key drivers of success in 2023: defensible investments, value alignment, bespoke structuring, strategic reviews and portfolio renewal, and continued take privates.
The firm suggested that to further unlock value, dealmakers would need to rethink their portfolios and get creative while keeping value at the core of their strategy.
“Investors want assurance and, more specifically, the confidence that an asset can sail through the inevitable peaks and troughs. They also want to preserve value in an uncertain market, so to this end, agility is a must,” Mr Silverwood said.
“You will be rewarded for thinking outside the box and creating bespoke deal structures that protect both the buyer and seller.”
