M&A Predictor – An Australian perspective | KPMG | AU
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M&A Predictor – An Australian perspective

M&A Predictor – An Australian perspective

Australia bucked the global trend of subdued transactional activity in 2016 with local deal volumes from mid-market and above remaining buoyant year-on-year with between 200-210 deals announced or completed in each year.


Head of Corporate Finance, Deal Advisory and Global Head of Debt Advisory

KPMG Australia


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This was underpinned by a strong level of activity in the second half of 2016 which we expect to continue well into 2017. Already the first quarter of 2017 is showing really positive signs with 54 (mid-market and above) deals planned, announced or completed including the sale of Endeavour Energy (US$8bn), the acquisition of Alinta Energy By Hong Kong’s Chow Tai Fook Enterprises (US$3,07bn), Downer EDI’s bid for Spotless Group (US$1,48Bn) and the investment in the Sunshine Coast Airport by a consortium led by Palisade Investment Partners.

The Australia deal landscape is dominated by mid-market transactions in the US$50m – US$500m deal value range with more than three times the number of deals compared with transactions greater than US$500m. However the total value of all these mid-market transactions represents only one third of the combined value of large deals.

Of the top 100 global mega deals (totalling US$44bn in deal value) Australia was represented by no less than five transactions. Australian Infrastructure and Energy and Utility assets and related businesses make up the majority of these deals with the privatisations of Ausgrid and the Port of Melbourne and the acquisitions of Asciano and DUET Group. These asset classes are expected to continue to feature in the global mega-deals rankings in 2017 with the process already underway for NSW’s Endeavour Energy. The one mega deal outlier was in the gaming industry with Tabcorp’s acquisition of Tatts Group.

Cross-border deals

Cross-border deals are fundamental to a healthy Australian M&A market and inbound activity continues to outstrip outbound. Inbound investment from China in particular makes the headlines and creates a perception that China is seeking to buy up Australia’s strategic assets. The reality is that inbound investment from North America, Europe and Japan far outweighs that from China. Deals such as Hanes Brands (US) acquisition of Pacific Brands and Hitachi Construction & Machinery’s (Japan) acquisition of HE Parts being just two examples from 2016.

So far in 2017 we’ve seen examples like Spain’s Acciona’s bid for local engineering and construction company, The Geotech Group and US based Mead Johnson & Company seek to acquire Bega’s spray dryers and infant formula finishing capabilities.

Outbound activity by Australian businesses in 2016 was focused on the US, UK and New Zealand with examples including Boral’s acquisition of US building materials firm Headwaters and Wesfarmers’ acquisition of the UK’s 265 Homebase stores.

In the first quarter of 2017 this trend seems to be continuing with examples including Macquarie Atlas Roads acquisition a 50 percent stake in US Toll Road Investors Partnership, Hastings Funds Management acquiring the remaining 50 percent stake in the UK’s South East Water Limited, Ansell acquiring the UK’s Nitritex Limited and Downer EDI agreeing to acquire New Zealand’s Hawkins Group Limited.

Industry focus

Technology was an area of focus for deals in Australia in 2016, however Consumer, Financial Services and Real Estate all featured heavily in the Australian market along with the Infrastructure and Energy. Looking ahead we expect Infrastructure and Financial Services, on the back of increasing pressure to focus on core services, to remain strong, Energy and Oil & Gas sectors are expected to gain momentum as commodity prices rebound and we will see technology deals becoming a key driver of growth with smaller technology acquisitions wrapping around all industries.

The above expectation is further supported when looking at Australia’s forecast leverage movements (using Capital IQ consensus forecast), which are expected to continue to improve, particularly with the Energy, Consumer Staples and Technology sectors all forecast to experience double digit (%) reduction in Net Debt/EBITDA, with lower levels of debt/higher cash and greater EBITDA forecast growth.

Whether or not the forecasts prove to be true, one thing remains constant, M&A remains crucial for companies seeking change. Businesses need to transform more radically and much faster than is possible organically. CEOs know this, as we have seen in the CEO Outlook Survey’s findings regarding their sentiment for the next 3 years. But we expect this to be a long-term trend, rather than a short-term reaction. Indeed, market capacity for M&A is expected to continue to improve in 2017, driven by healthy bottom lines and deleveraged corporate balance sheets.

We look forward to an exciting journey for the remainder of 2017, as we continue to help our clients successfully balance opportunities and risk whilst creating value, amid a rapidly changing environment.

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