In the dynamic world of business, mergers and acquisitions (M&As) serve as critical strategies for companies aiming to optimise their portfolios, expand market presence, and capitalise on emerging opportunities; in essence, two companies are better than two separate companies.
Examining the trends in 2023 and 2024, it becomes apparent that mergers and acquisitions are not only about financial transactions, but also strategic manoeuvres aimed at driving growth and enhancing competitiveness.
2023 Merger and Acquisitions trends
M&A activity overview
In Q2 2023, Australia experienced a decline in M&A activity compared to Q2 2022. There were 232 M&A transactions totalling USD 13.8 billion, representing decreases of 33.3% in deal counts and 49.3% in transaction value.
Both domestic and outbound markets experienced significant decreases in total transaction value, declining by 52.7% and 54.3% respectively. However, the inbound market saw a notable increase, with aggregate transaction value rising by 198.6% for the year-to-date (YTD) period of 2023 compared to YTD 2022.
For the YTD 2023 period, the Consumer Staples sector witnessed the most substantial increase in the inbound market, followed by healthcare in the domestic market and Materials in the outbound market. Sectors like Energy, Healthcare, and Consumer Discretionary experienced less significant growth.
Asia Pacific M&A trends; Australia’s comparative performance
In Q2 2023, Greater China and Singapore emerged as the busiest M&A markets in the APAC region, representing 41.2% and 18.3% of the total M&A transaction value, respectively. During the same period, Australia experienced growth in its total transaction value compared to the second quarter of 2022, contributing 9.8% to the overall transaction value of the APAC region.
Explaining the trends: recent impediments to M&A and upcoming remedies
Whilst recovering from a stagnant financial period during the Covid-19 pandemic like most of us, the consumer and retail M&A sector has seen a significant slowdown in activity as a result of inflation, geopolitical issues, supply chain problems, and a weaker Australian dollar. The instability fostered uncertainty and risk, prompting businesses to adopt a more cautious stance towards engaging in M&A transactions. Faced with these challenges, potential acquisition targets may have appeared less appealing, while the complexities of navigating uncertain economic conditions may have deterred deal-making altogether.
Data shows a steady rise in retail and consumer M&A deals in recent years, especially in 2023, but the outlook for 2024 is still cautious. With the Reserve Bank of Australia having increased interest rates, businesses in this sector have faced additional challenges. Despite this, around 70 deals have been reported in the past year, and major retailers’ performance remains relatively strong.
2023-24 and the future
Interest rates are expected to stabilise in 2024, ending a period of high macroeconomic volatility. An increase in M&As can thus be expected, as dealmakers are gradually provided with certainty in price dealings and financing. The end of the recent run of high interest rates will likely fuel a further sharp increase in dealmaking.
As inflation subsides globally, central banks will take steps to reduce lending rates in the upcoming year- an adjustment likely to be embraced by dealmakers, especially those having faced recent challenges in bridging persistent gaps in valuation.
A recent global survey of 200 leading executives on international M&A trends (Norton Rose Fullbright, 2024) pointed to promising signs of an M&A activity rebound towards the end of 2024. Contributors pointed towards new products on the global market, consolidation, and widespread digital transformation as the likely key drivers of the increased activity. The findings directly corresponded with Australian M&A trend estimations and reasonings.
OpenLegal
At OpenLegal, our expert corporate lawyers provide essential guidance for navigating mergers and acquisitions. From due diligence to negotiations and regulatory compliance, we ensure smooth transactions and favourable outcomes for your business. Contact us at enquiries@openlegal.com.au or 1300 337 997.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
