M&A set to surge on greater business certainty


Simon James

Despite a marked drop in M&A activity during the last quarter of FY20, local and global markets have proven their resilience in the period since with a notable uptick in the number and size of deals, according to M&A Deals: Australia Year in Review FY20/21, a new report by HLB Mann Judd Sydney.

The report analyses M&A deal volume, pricing and industries over FY20/21, and according to advisory partner, Simon James, the outlook for M&A activity remains strong as businesses adapt to the new operating environment.

“The appetite of businesses to consider M&A is due to a number of factors, but primarily because there is more certainty around living with COVID, coupled with economic stimulus and ultra-low interest rates.

“Although New South Wales and other states continue to experience lockdowns – which inevitably impact businesses – the initial shock of such challenges is now understood. Overall, businesses are better able to adapt to these circumstances and continue to operate as best as possible.

“As a result, we’re seeing 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 FY22,” he said.

According to the report, 1,207 M&A deals were completed in FY2021, a slight increase from 1,191 in FY2020. However, while the number of deals increased, the average transaction size decreased from $113.2 million in FY2020 to $88.6 million in FY2021, largely driven by a redistribution in the size of deals.

“There were more deals in FY2021 below $5 million and less deals completed over $25 million. This may reflect opportunism as a result of the ongoing COVID-19 pandemic with companies keen to complete opportunistic smaller deals that presented themselves,” he said.

Tellingly, while the number of transactions in each month over the 12-month period appears relatively consistent when comparing FY2021 and FY2020, there is a noticeable drop in the number of transactions during March to June 2020.

“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.

At an industry level, the materials and information technology sectors saw an increase in the number of transactions during FY2021, with the average transaction size approximately the same or lower compared to FY2020. The financials, telecommunications and utilities industries experienced an increase in the average transaction size in FY2021, suggesting that they may not have been as heavily impacted by the COVID-19 pandemic as others.

Mr James said the firm is anticipating several industries to continue to attract strong levels of M&A activity over the coming months, namely those connected to 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. 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,” said Mr James.

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