Transaction activity softens but outlook remains strong

Record M&A activity during Covid in Australia has given way to a softer first half in 2022, with total deals down from 503 in the same period the year before to 359 in January to June 2022 (-29%) interestingly the total transaction value increased and was up 6% helped by a few mega deals. Average deal values have come off somewhat with the mean size c$55M versus c$70M in the second half of 2021.

One key insight is that there is a trend toward smaller cap and lower mid-market deals. This is good news for many business owners in Australia. Oasis Partners continues to witness strategically motivated buyers being less interested in size and more focussed on the “fit.”

The midmarket (EV $10– $250M) accounted for 34% of deals and will continue to be the main driver of activity, or as Dealmakers suggested in their report, the mid-market is the “mainstay of dealmaking in Australia.”

This mid-market also remains the focus for overseas buyers who we are witnessing becoming increasingly active in the post Covid period, similarly private equity firms continue to compete in this space although in the first half of 2022 (excluding the Ramsay Healthcare deal) saw their total investment levels drop to just $3bn, the lowest in recent years, we have found that PE firms do scare easily!

Trade buyers are also weighing their options, and many with strong balance sheets continue to look to supplement their organic growth with bolt-on acquisitions. The synergies offered through a merger with a trade buyer continues to often provide a valuation edge for vendors.

The return of overseas buyers in the mid-market is a very welcome feature going forward. The full impact of this in the post Covid environment, with the return to more normal international travel, is in our view not yet reflected in the first half activity stats.

As an example, about 50% of Oasis Partners transactions in the decade leading into Covid had an overseas element to them. This dropped off significantly during Covid with just one deal involving an overseas buyer in both 2020 and 2021. We are beginning to see activity from overseas buyers start to return more normal levels.

Sectors

Technology accounted for 30% of deals in the first half of 2022 energy with healthcare and renewables also featured. The mid-market saw consolidation in leisure and transport and deal activity recorded across most sectors including mining services.

Outlook

According to Dealmakers M&A in Australia will remain robust driven by our strong fundamentals including, economic growth, political stability, and a mature deal making industry. Australia offers abundant investment opportunities, with many world calls local businesses, for overseas buyers and as competition for assets heats up Dealmakers sees a strong outlook, and we don’t disagree with them on that point.

If you or anyone you know is considering their options around succession and exit feel free to contact me or one of my Partners at Oasis Partners for a confidential discussion, we would be happy to share with you what we are currently seeing in your sector and assist in any way we can.

Until next time,

Good luck and stay safe

References 

1. Mid-market M&A in Australia, Pitcher Partners & Mergermarket, 4 July 2022- https://www.pitcher.com.au/dealmakers-202