Simon James
Despite a decrease in the number of merger and acquisitions (M&A) transactions in the second quarter of FY22, the average deal value has increased significantly, according to the latest Australian M&A Review by HLB Mann Judd Sydney.
The report indicates there were 334 M&A transactions completed in Australia between October and December, compared with 351 in the same period the prior year – a decrease of five per cent. However, the average deal size increased from $92 million in Q2 FY2021 to $129 million in Q2 FY2022, due to an increasing number of deals with transaction values over $100 million.
Co-author of the report and HLB Mann Judd Sydney corporate advisory partner, Simon James, said the findings demonstrate the ongoing market uncertainty is creating opportunities for quality businesses and those hungry for expansion.
“There is so much capital in the market and debt remains cheap so opportunistic businesses are looking for comparable organisations that could either add value to their existing offering or are a natural extension to the core product or service.
“While some businesses have spent the better part of two years trying to break even, others have used the time to identify appropriate suitors and negotiate accordingly.
“The switch from quantity of deals transacted to quality of deals also suggests that businesses may be willing to pay a premium now, given the cost of capital is likely to increase from here on,” he said.
Mr James said the strong appetite for M&A activity reflects the removal of COVID-19 restrictions and improved mobility, as well as the rollout of the vaccine both locally and globally.
“The outlook for M&A remains strong and will likely increase in the number and size of transactions throughout the remainder of 2022.
“There are always good businesses out there – it’s a question of finding them and providing them with the right capital, at the right time,” he said.
The top three sectors by quantity of deals in Q2 FY2022 were the materials, consumer discretionary and industrials sectors, while the top sectors by deal value were telecommunication services and financials sectors.
Mr James said HLB Mann Judd Sydney is forecasting several industries to continue to attract good levels of M&A, namely those connected to healthcare, technology and agriculture.
“Supply chain disruption continues to be an issue for particular sectors, such as retail. If a business is able to address some of the supply chain issues the market has experienced over the past year, these businesses will be of interest to potential acquirers in the near future – if not already,” he said.
Some of the notable transactions throughout the reporting period include Host Plus and Charter Hall’s acquisition of ALE Property Group, private equity giant KKR buying CBAs Colonial First State, and AS Infra Tower’s purchasing of Australia Tower Network.