The outlook for mergers and acquisitions (M&A) remains subdued as tightening economic conditions prompt greater caution, according to the latest Australian M&A report from HLB Mann Judd.
By analyzing the Australian M&A market, including transaction trends, industry dynamics and valuations, the company found that the depression present in 2022 and 2023 continued into 2024.
Indeed, the total number of transactions fell further to 945 in fiscal 2024, compared to 1,190 and 1,487 in the previous two years.
Commenting on the data, Nicholas Guest, Insurance and Advisory Partner at HLB Mann Judd Sydney, said: “The reduced number of transactions in all quarters of FY2024 compared to FY2023 and FY2022 indicates that Investors continue to take a cautious approach when respecting supplier prices. expectations in light of high interest rates, rising inflation and ongoing geopolitical tensions.
“As a result, some transactions continue to be suspended as dealmakers prioritize extending their operating cash flow, delay transactions until market conditions improve, and pursue transactions that offer a clear added value.”
However, Guest highlighted a sharp increase in the number of institutional investors, particularly in the pensions sector, actively seeking investment opportunities, with many in mind environmentally friendly green sectors.
“Overall, there is a growing appetite for transactions, but the market continues to face economic uncertainties and geopolitical risks,” Guest said.
Private investors, in particular, are said to be more cautious about M&A opportunities within the Australian SME segment.
“We anticipate that private investors will prioritize investments in companies with strong business fundamentals, such as stable earnings and clear value propositions, to optimize their portfolios in an environment of high interest rates and persistent inflationary pressures,” Guest said.
Interestingly, the report reveals that large companies with funding are seizing the opportunity to pursue mergers and acquisitions that were previously considered too costly and out of reach.
Namely, the year ending June 30, 2024 saw an increase in the number of transactions exceeding $1 billion, with 26 transactions compared to nine transactions in the previous year and 15 transactions in the 2021-2022 financial year.
The average transaction value increased to $121 million in FY23-24 from $89 million in FY22-23.
According to Guest, this trend could also reflect the fact that dealmakers are prioritizing deals with clear strategic benefits and long-term potential over short-term investments.
Expanding on deal activity in FY23 and FY24, the report found that the first and second quarters saw a similar number of deals – 268 and 264, respectively – likely due to the push to finalize deals. transactions before the end of the calendar year.
This number decreased slightly in the third and fourth quarters – 205 and 208, respectively – while the overall average multiple obtained for closed deals decreased from 10.3x in FY22-23 to 9 .3x in FY23-24.
According to Guest, the government’s commitment to achieving net zero emissions targets by 2050 could prove promising, potentially boosting activity in energy transition infrastructure, including the energy storage and distribution sectors. energy, particularly among government-backed fund managers.
“This trend was evident in FY22 and FY23, when the Clean Energy Finance Corporation, a government-backed fund, invested in 50 new and subsequent deals, committing a total of $1.9 billion to companies targeting to reduce emissions across the Australian economy. » he said.
