The outlook on M&A for the remainder of 2021 and beyond
- Deals Team
- Jul 12, 2023
- 2 min read
In response to the COVID-19 global pandemic, Australian Merger and Acquisition (M&A) activity in 2020 experienced a steep decline with a 20% reduction in deals successfully closing compared to 2019. Many companies have survived the economic hardships of COVID-19 by implementing defensive strategies and reducing their corporate spending. Coupled with the government stimulus measures that were quickly implemented, the Australian economy has made a sharp recovery to date. With many Australian companies now sitting on stronger balance sheets, it is seemingly a ripe backdrop for M&A activity to take place this year and beyond with many companies on the lookout to inorganically grow or fill gaps within their portfolios and capabilities.
“The mid-market segment (deals valued between AU$10m and AU$250m) is expected to enjoy a particularly strong uplift in M&A. Two-thirds of respondents say Australia’s mid-market offers better opportunities for dealmaking than what is available in other countries, and more than half expect to undertake at least one mid-market transaction over the next 12 months.” – Dealmakers 2021 Report
One factor that is driving the recovery in deals is Australian companies are not overleveraged and have healthy balance sheets (unlike in the GFC). Along with private equity companies sitting on record amounts of “dry powder”, many key dealmakers believe they will see a dramatic increase in deals taking place over the next 12 months.
Whilst we are only halfway through the year, activity is ramping up. According to Dealogic, 2021 has already seen $46.3 billion worth of Australian listed and unlisted M&A deals, compared to $19.1 billion at this time last year.
Turning to the potential drivers of M&A going forward, one of the clear differences between now and the peak pre-GFC M&A activity of 2006 is interest rates. While interest rates didn’t peak until mid 2008, they did reach a level of 6.25% in 2006 which is a vast contrast to the current RBA cash rate of 0.10%.
Whilst we will continue to have periods of COVID-19 uncertainty ahead, we shouldn’t lose sight of the economic environment that is creating this platform for heightened M&A activity. Record low interest rates are likely to remain for the medium term, corporate balance sheets appear to be in good shape and there is relatively accessible capital available for businesses.
