2020 was a year of unforeseeable circumstance, with the onset of the COVID-19 pandemic. This had an impact on mergers and acquisitions in Australia and we will discuss these themes through foreign investment, investment managers activity, EBITDA median multiples and more… Keep reading to find out how this impacted the 2020 market and what the future holds.

Note: Most of this information has been sourced from the Dealtracker 2020 Australian M&A and IPO market insights.

The Pandemics Impact on Deal Activity

Before the onset of the pandemic, deal volume was at an all-time high with a record number of mergers and acquisitions being reported. However, this activity rapidly decreased as the pandemic took over, with deals falling to a low which has not been seen since 2017.

However, there appears to be light at the end of the tunnel, as deal activity slowly begins to incline once again. Especially considering the uncertainties behind a post-pandemic period, the future is looking bright. With a strong shift to technology-based operations from both consumers and businesses alike, there is a significant potential for technology-enabled opportunities.

As Australia moves from a resource economy to a knowledge-based service economy there has been considerable growth in the technology sector, as seen below.

Foreign Investment Opportunities

International interest in mergers and acquisitions in Australia was slightly down from 31% last year, at a total of 29%. Cross border deals have slowed in recent times due to the changes in the Foreign Investments Review Board regime. There have also been other challenges present such as travel restrictions due to the pandemic. This could potentially increase domestic investment, driving foreign deals further down.

However, the trend of foreign investment into Australia does still remain steady. The affordance of technology to facilitate deals and a willingness to accommodate an extended approval process has enabled continuous mergers and acquisitions in Australia from foreign investors. It is clear to see that there is still a global hunger for companies looking for growth, even in this current environment.

It is important to note that Australia holds a reputation as a ‘safe haven’ for investments due to economic and political stability. According to the World Bank, Australia ranks #14 for ease of doing business. If Australia is able to emerge from the pandemic in a good shape economically, this could drive foreign interest.

Investment Managers Activity

Despite the slowdown from the pandemic, Investment Manager activity remained strong in 2020. This was due to a peaked interest in Information Technology and other technology-based opportunities, seen to drive deal activity this year. Managers also had continued access to significant funding which also contributed to driving these figures. The availability of capital has enabled bidders to hunt down attractive areas of growth.

SME’s as the Predominant Acquisition Targets

Over 90% of the Australian business landscape is made up of SME’s.

SME’s continue to be the predominant acquisition target; with a large portion of deals transaction values being less than $100 million. Additionally, transaction size is no barrier for foreign investors, with deals remaining strong even at around $50 million. This is particularly due to the increased affordance of technology to complete deals virtually.  

Those SME’s with strong potential to achieve growth will have greater opportunities to obtain a high valuation.

EBITDA Median Multiples

Outperformance in the Consumer Discretionary, Healthcare, Materials and Energy sectors had a positive influence on the EBITDA median multiples. From the previous period of 7.1x to 8.1x, this is slightly higher than the historical average of 7.8x.

The Future of Mergers and Acquisitions in Australia

It is difficult to make predictions under these current circumstances. However, market themes surrounding accelerated technology will continue to drive deal activity. In spite of this, the reduction in government stimulus and ongoing risk of infection from the pandemic poses threats to the overall trading environment. If these risks remain for a longer period of time this could significantly decrease deal volumes and asset valuations.

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