Early spring: uptick in cross-border activity may signal Australia M&A revival

Data InsightDealspeak 14 August

Early spring: uptick in cross-border activity may signal Australia M&A revival

Spring might have sprung early in the Antipodean winter, with hopes that Australia’s M&A market could experience a revival in activity following a first-half upturn in both inbound and outbound deals.

The country’s inbound deal volume raced to USD 33.3bn in 1H23, according to Mergermarket data, significantly higher than the USD 18.5bn recorded in 2H22 and USD 11.5bn in the same period last year.

Outbound activity, traditionally lower than inbound, also increased in the latest half to AUD 9.2bn from USD 7.0bn in 2H22 and USD 7.9bn in 1H22.

Mined the gap

While Australia has long been deemed an attractive investment destination, the rise in cross-border activity in 1H23, especially inbound, contrasts with a decline in overall deal numbers.

The mining sector in particular has seen the good times coming back with a bang. According to Mergermarket data, mining was the most active sector in 1H23, with 51 deals totaling USD 24.1bn, followed by healthcare (USD 5.2bn) and consumer (USD 3.0bn).

Indeed, the country’s biggest deal of the first half was an inbound transaction in the mining sector – Australian gold miner Newcrest [ASX:NCM] agreed to be acquired by Newmont [NYSE:NEM] [TSX:NGT], a Denver, Colorado-based mining giant, for an enterprise value of AUD 28.8bn (USD 19bn).

Another notable deal is domestic lithium miner Allkem’s [ASX:AKE] USD 10.6bn all-stock merger of equals with Livent [NYSE:LTHM], although this is not included in Australia’s deal count by Mergermarket because the target is based in the US.

Australian total M&A saw 412 deals signed in 1H23 for a total volume of USD 44.2bn, dropping from the previous half-year’s 555 deals for USD 54.3bn. Deal volume this year has improved slightly from USD 41.3bn in the same period last year, while the deal count is 21% lower.

Back in business

Financial sponsor-led activity in 1H23 declined on both the buyout and exit fronts, according to Mergermarket.

Buyout activity dipped to USD 3.1bn across 14 deals from USD 3.7bn via 20 transactions in 2H22 and USD 4.6bn from 20 deals in 1H22. Sponsor exit deals slumped to six, with a total volume of USD 830m, a sharp decline compared with USD 6.7bn in 2H22 and USD 6.4bn in 1H22.

Those firms waiting in the wings may be encouraged to see the latest developments in some deals that previously seemed to have gone cold.

A recent media report notes that Pacific Equity Partners (PEP) is in late-stage talks to acquire Serenitas, an Australia-based lifestyle communities business owned by Tasman Capital and GIC, and is expected to sign an agreement in the coming weeks. This comes more than 10 months after media reported that GIC hired Goldman Sachs to exit the business.

Some deals could take even longer to revive. As early as October 2019, the CEO of Incitec Pivot [ASX:IPL] told this news service that the company would go through a structured process to test buyer interest in its fertilizer business should it decide to divest, and later in that year, a sale process was launched. However, in April 2020, the company announced it had ceased discussions with potential buyers for the unit. Fast forward to May 2022, Incitec Pivot said it would spin off its fertilizer business to seek a listing, and this news service reported recently that it is in bilateral talks with Indonesian state-owned urea fertilizer maker PT Pupuk Kalimantan Timur (Pupuk Kaltim) over a possible sale.

According to Moore Australia’s Director and National Chair of Corporate Finance, Benjamin Yeo, other stalled deals are set to come back on the agenda, as vendors and shareholders alike “return to earth” with their price expectations and more rational valuations.

Despite the past 18 months’ cool-down, spring may truly be coming back to M&A Down Under.

Analytics by Manu Rajput

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