Corporate Australia bullish on deals and M&A outlook – KPMG Australia’s, Australia’s Evolving Deals Landscape annual report released today.
There are boom times ahead for the deals/M&A sector in Australia according to the results of the latest annual report from KPMG Australia, “Australia’s Evolving Deals Landscape 2018”. The report captures the opinions of corporate Australia about how senior executives view the extent and characteristics of deals and M&A activity in the coming 12 to 24 months.
The survey results suggest an uptick in M&A activity for FY19 with almost half (47 percent) of respondents expecting an increase in M&A activity over the next 12 months, up from 38 percent in 2017.
“Australia experienced a record-breaking year in 2018 with the highest number of M&A deals (598) on record with a value of AUD 102.8 billion*. It looks like this level of activity will continue with close to 200 deals closed Year To Date and total value of AUD 52 billion,” said David Heathcote, KPMG’s National Head of Corporate Finance. “Notably, just 7 percent of respondents to our survey said they expected a decrease in activity.”
Mr Heathcote pointed to strong liquidity in debt markets together with the cost of funding expected to remain relatively stable, supported by 53 percent of respondents who also say funding costs will remain the same.
“However, the respondents in our 2018 report don't see it as all smooth sailing as they are also dealing with a marketplace where there are fewer suitable targets, and targets that are also considered expensive. Respondents noted another barrier was board risk appetite for inorganic growth. These issues aren’t dampening activity so much as contributing to the way in which deals will evolve,” he said. “It is critical to understand the key levers that impact value in a deal, which go far beyond financial accounts, whilst utilising new deal technology tools to harness deep insights and identifying upside.”
In terms of the M&A pipeline in Australia, the report findings showed the number of respondents actually planning to undertake M&A in the next 12 to 24 months was 43 percent. Many thought they would grow organically (56 percent), but far fewer (21 percent) expected to sell or divest part of their business.
Peter Turner, Head of M&A at KPMG said that these findings were also consistent with activity across industries and a continuance of the robust deal volume experienced in Australia over the past year.
“Those on the acquisition trail are mostly looking to grab market share, with 40 percent of respondents choosing this as a driver for M&A,” he said. “Industry consolidation was the next most popular driver for M&A (38 percent), followed by an opportunistic target becoming available (36 percent).”
However, the outlook varies across sectors. Energy and Natural Resources (ENR) companies are extremely positive about the year ahead, with 72 percent predicting an increase in M&A activity – a 20-percentage point increase from the previous year. Financial Services was also positive about the outlook for M&A, with 48 percent expecting an increase in activity.
Mr Turner said that at the other end of the scale, organisations in the Health, Ageing and Human Services sectors were less optimistic about an increase in activity (29 percent). Whilst only 11 percent of those in the broader Corporate sector (consumer, retail, business services etc.) expect to undertake a merger or acquisition in the next 12 to 24 months.
Notwithstanding, private equity investors are actively seeking opportunities in the Healthcare and Corporate sectors, which will continue to drive M&A activity.
Mr Turner also pointed to some differences in what is driving M&A between the sectors.
“In the ENR sector, opportunistic targets becoming available is expected to drive M&A (45 percent). Last year the lead driver was favourable asset prices (55 percent), while this year only 23 percent of ENR respondents pointed to this.”
* according to Mergermarket numbers
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