2022 Dealmakers: Australia mid-market M&A 1H22 market update
Contents Foreword 1 Australian M&A: 1H22 update 2 Global M&A 3 Deal drivers: Mid-market and 4 mega Investordealsfocus: Foreign buyers and 5 private equity Sector watch 6 About 7 About this report Data in this report comes from Dealogic and was compiled on 4 July 2022. All figures are in AUD unless otherwise stated. Value figures are approximations and have been rounded.
volume
deals) 359 -29%deals 1H22 deal value increased
Foreword
While not reaching the lofty heights of the past 18 months, the Mergers & Acquisitions (M&A) market is set for a robust second half of 2022 as dealmakers remain drawn to Australia’s strong fundamentals and mid-market opportunities. What a difference six months can make. In our annual Dealmakers report, almost half of dealmakers were convinced that record M&A levels would last through the next 12-24 months – and another 28% felt it would last longer than two years. At the half year mark, we see these sentiments may not be playing out as initially expected. Australian M&A totals for 1H22 slowed noticeably compared to 2H21 figures. From 1H21, however, deal values have actually increased (albeit heavily influenced by the announced Ramsay Health Care sale to a consortium led by KKR for AU$28bn), although volume has declined. Given the relentlessness of geopolitical and macro shocks since the beginning 2022 – starting with Russia’s surprise invasion of Ukraine and pressures from rising inflation, oil prices and interest rates – it’s no surprise that the overall direction of the market has developed this way. All things considered, market sentiment could be far worse. While the year ahead may not be a record-breaker, M&A in Australia is bound to remain robust. Australia’s strong fundamentals – economic growth, political stability and a mature dealmaking industry – remain unshaken and will allow dealmakers to weather the seas of uncertainty through the rest of 2022 and into the year ahead.
The engine of M&A may be strongest in Australia’s midmarket (deals valued between AU$10m and AU$250m), where growing appetite for deals among domestic and international buyers will continue to drive M&A forward.
1
levels in
AU$88.3bn6% Australian M&A
watchSectorAbout focus:Investor andbuyersForeign equityprivate Mid-drivers:Deal megaandmarket deals M&A:AustralianM&AGlobal1H22update ContentsForeword 1H22
While this deal segment also saw declines across the half year, today it accounts for a third of all deals (34%), compared to 23% prior to the pandemic. As the deal landscape of the past 18 months once again shifts, Australia will continue to offer abundant investment opportunities. Indeed, 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 futureproof their organisations against the uncertainties and challenges that lie ahead. deal declined from 1H21 (503 from 1H21 (approx. AU$83.4bn)
• Following 18 months of relentless dealmaking, investor euphoria appears to be tapering off in a noticeable drop in volumes, although values remain buoyant (largely influenced by the Ramsay Health Care deal, which has yet to be completed)
Australian M&A: 1H22 snapshot The M&A boom may be over, but the market has hardly gone bust, as dealmaking remains steady and strong
• Median deals show a historical trend towards small-cap and lower mid-market deals, compared to the past year which saw a median value rise due to the impact of a record-breaking number of large cap transactions (specifically valued above AU$10bn
• Equally, despite the recent election that ushered in a new government, there is little to no political uncertainty among dealmakers as the new administrations seems content with maintaining the status quo and a business-asusual atmosphere
2 watchSectorAbout focus:Investor andbuyersForeign equityprivate Mid-drivers:Deal megaandmarket deals M&AGlobal M&A:Australian update1H22 Foreword Contents Australia M&A: Median deal values Australia M&A *Value excludes deals over AU$10bn for 2021-22 Deal volume Adjusted deal value (AU$m)* Total deal value (AU$m) $200,000$100,000$50,000$-$150,000$250,000 2018 2020 2021 2022 volumeDeal(AU$m)valueDeal 2019 7006005004003002001000 H1H2H1H2H1H2H1H2H1 $60$50$20$10$-$30$40$70 H1H2H1H2H1H2H1H2H1 Median deal value (AU$m) 2018 2020 2021 2022 volumeDeal(AU$m)valueDeal 2019
• However, dealmakers aren’t throwing on the brakes full stop –many may just be taking more time to do deals and engaging in M&A that more closely aligns with strategic objectives. This overall slower deal process means many deals may be pushed into 2H22 or early next year
• However, M&A remains a vital part of corporate strategies and many businesses are aiming to transform their business models by using M&A to: divest non-core assets; reinvest in growth; and access foreign markets through cross-border transactions
• Stock indices on US exchanges have turned bearish, meaning bargain hunters will have opportunities to buy at a discount, especially in the battered tech sector
Global M&A
• Global M&A dropped during 1H22 as the world’s major economies grappled with geopolitical challenges (conflict in Ukraine), the lingering effects of the pandemic, and macroeconomic factors (rising interest rates to manage runaway inflation, stock markets entering bear territory, and fears of a possible global recession)
M&AGlobal-15%deals Global-18%value 1H22 deal volume (15,921) declined levels in 1H21 (18,713 deals) 1H22 deal value (approx. AU$3.1tn) decreased from 1H21 (approx. AU$3.8tn) 3 watchSectorAbout focus:Investor andbuyersForeign equityprivate Mid-drivers:Deal megaandmarket deals M&AGlobal M&A:AustralianForewordupdate1H22 Contents $5,000,000$4,000,000$3,000,000$2,000,000$1,000,000$Deal volume Deal value (AU$m) 22,00020,00018,00016,00014,00012,00010,000 H1H2H1H2H1H2H1H2H1 2018 2019 2020 2021 2022 volumeDeal(AU$m)valueDeal
• In Europe, activist shareholder pressure is driving deals and divestitures and the ongoing impact of Russia’s invasion of Ukraine continues to create unease among dealmakers
• In Asia Pacific, China may be poised for a rebound if the market reopens, with dealmaking shaped by energy security and reforms at state-owned enterprises. Likewise, India could see more activity in its banking sector Global
Global dealmaking bottoms out on fears of recession, rising interest rates and geopolitical uncertainties:
Australia’s mid-market continues to be a hotbed of M&A, while mega deals help to prop up values: 4 Deal drivers: Mid-market and mega deals • Mid-market M&A experienced similar declines to the broader M&A market in 1H22 – values down 42% and volume down 28% from 2H21 – although this segment remains a mainstay of dealmaking in Australia, accounting for 34% of all deals (and 65% of deals with disclosed values in 1H22) • Mid-market deals remain a target segment for foreign investors looking to expand their presence or gain a foothold in Australia and further M&A could unfold as larger corporations and multinationals reassess their business strategies as they prepare for possible recession or other macro shocks. Likewise, private equity firms could compete for assets in this space • Large cap deals have helped propel M&A values over the past 12 months. With 43 deals, 1H22 was one of the highest first halves for transactions valued above AU$250m and accounted for 12% of deals for the half year Australia M&A: Deal size analysis (by volume) 0 100 200 300 400 500 600 700 H1H2H1H2H1H2H1H2H1 Small cap (<AU$10m) Mid-market (AU$10m-250m) Large cap (>AU$250m) Undisclosed 143 118 29 182 120 148 48 211 174 149 28 200 220 151 55 224 163 93 23 158 220 165 41 156 144 157 46 156 70 169 81 184 22 121 43 173 2019 2020 2021 2022 H2 H1 H2 H1 H2 H1 Australia mid-market M&A Deal volume Deal value (AU$m) 2018 2019 2020 2021 2022 $12,000$10,000$6,000$2,000$-$4,000$8,000$14,000 volumeDeal(AU$m)valueDeal 180160140120100806040200 H1H2H1H2H1H2H1H2H1 watchSectorAbout focus:Investor andbuyersForeign equityprivate Mid-drivers:Deal megaandmarket deals M&A:AustralianM&AGlobal1H22updateForeword Contents
Deal volume Deal value (AU$m) 2018 2019 2020 2021 2022 $1,000$600$200$-$400$800$1,200 volumeDeal(AU$m)valueDeal 1614121086420 H1H2H1H2H1H2H1H2H1 500200100300400600700 2019 2020 2021 2022 H1 H2 H1 H2 H1 H2 H1 Inbound Domestic volumeDeal Australian M&A: Domestic-Inbound deal comparison Australian mid-market M&A: Private equity deals watchSectorAbout focus:Investor andbuyersForeign equityprivate Mid-drivers:Deal megaandmarket deals M&A:AustralianM&AGlobal1H22updateForeword Contents
• Overall inbound M&A accounted for almost 40% of total deals in Australia in 1H22, in line with percentages before the pandemic. It was also one of the highest valued first halves in the past five years with AU$19bn in total inbound deals
• Overall private equity (PE) deals rose markedly to hit AU$31bn in 1H22 – although excluding the Ramsay deal (AU$28bn) that number drops significantly to only AU$3bn.
Total PE deals, however, dropped to some of the lowest in recent years
• PE mid-market activity also dropped from record highs in 2H21, now settling into familiar territory seen both before and slightly after the pandemic. PE buyers could once again be seated on the sidelines as they wait to see how volatility and uncertainty around macro pressures in global markets play out
• Mid-market inbound M&A values rose 1% from 1H21 to hit AU$2.7bn, although volume declined 23% (31 deals). The mid-market remains a value centre possibly as foreign buyers recognise Australia’s strong fundamentals compared to other markets in Asia Pacific
Investor focus: Foreign buyers and private equity Australia maintains its attractiveness among foreign buyers, although private equity scales back investment:
6 Sector watch Digital transformation and decarbonisation are key trends driving M&A, although leisure and healthcare see significant deal values: • The AU$28bn Ramsay deal puts pharmaceuticals and healthcare far and away first in value terms, with leisure also seeing greater deal values compared to traditional sector leaders like tech and energy • Australia’s healthcare sector will offer abundant opportunities going forward, particularly as an ever-rising aging population creates demand for health and aged care services • Leisure deals could continue to see an uptick on the heels of a revival of inbound travel and tourism, as well as demand from local residents • Tech accounted for 30% of deals as bidders battled for takeovers of targets with rich IP and digital solutions as they look to transform their operations. Australia’s robust startup scene and mature mid-market tech firms offer abundant acquisition opportunities in this domain • Decarbonisation and the energy transition drive strong interest in Australia’s renewables sector, allowing energy M&A to surge in the broader and mid-market. Environmental, Social and Governance (ESG) has risen as a major consideration when doing deals, causing dealmakers to look for greener targets for M&A Australia M&A: Sectors Australia mid-market M&A: Sectors *Adjusted value excludes AU$28bn Ramsay Health Care deal FinancialEMTMTU services IndustrialsLeisure and chemicals Business AgricTransportationConstruRealPharmaConsumerservicesestatectionulture 33% 16% 13% 10% 8% 6%7% 2%2%3%4%2%0% 31% 14% 11%12% 6% 4%4%4%5% 2%0% Adjusted deal value* Deal value Deal volume FinancialEMTMTLeisurePharmaU AgricultureConsumerIndustrialsConstructionBusinessRealTransportationservicesestateservicesandchemicals4% 35% 14%15% 11% 8% 5%6%6% 1%2%3%0%0% 6% 8% 30% 14% 9% 3% 12% 3%4%5% 1% About watchSector focus:Investor andbuyersForeign equityprivate Mid-drivers:Deal megaandmarket deals M&A:AustralianM&AGlobal1H22updateForeword Contents
About 7 About watchSector focus:Investor andbuyersForeign equityprivate Mid-drivers:Deal megaandmarket deals M&A:AustralianM&AGlobal1H22updateForeword Contents Mergermarket is an unparalleled, independent mergers & acquisitions (M&A) proprietary intelligence tool. Unlike any other service of its kind, Mergermarket provides a complete overview of the M&A market by offering both a forwardlooking intelligence database and a historical deals database, achieving real revenues for Mergermarket clients. Simon Elliott Global Managing Director, ION Community T: +44 20 3741 1060 | E: simon.elliott@iongroup.com Dealogic offers integrated content, analytics, and technology via targeted products and services to top financial firms worldwide. Whether working in capital markets, sales and trading, banking, or compliance, firms rely on the Dealogic platform to connect and more effectively identify opportunities, execute deals, and manage risk. With more than 30 years’ experience and a deep understanding of financial markets, Dealogic is a trusted global partner. For further information, please contact: Nisha Bharadwa Media Engagement, Dealogic T: +44 20 7440 6178 | E: nisha.bharadwa@dealogic.com Raquel Mozzer M&A Research, Dealogic T: +1 212 577 4524 | E: raquel.mozzer@dealogic.com
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