North America goes on an Australian business buying and merging spree

Michael Sonego, corporate finance lead, Pitcher Partners

Australian mid-market M&A looks set for one of its strongest years in recent history, despite sharp falls in inbound investment including the Chinese buyers in the past six months.

While North American buyers have been on a buying spree, investing twice as much in the first half of 2021 as they did all of 2020, it isn’t enough to counteract the loss of China.

Pitcher Partners and Mergermarket data revelations

New data released by Pitcher Partners, in collaboration with Mergermarket, shows the impact of China’s retreat on domestic M&A, with just one transaction worth a mere AU$80 million in the first half, compared to 11 transactions for a combined AU$2.2 billion in deals last year.

In contrast, North American buyers now represent half of inbound deal makers, splurging AU$7.8 billion on mostly larger deals in the first half, compared to AU$4.9 billion in FY2020.

Pitcher Partners corporate finance lead Michael Sonego says the shift in inbound M&A has been building for a while, on the back of closed borders, political tensions with China, and tighter rules around foreign investment.

“Australia had a strong first half in 2021 by value, but less so by volume, which is about 30% down on the second half of last year,” Mr Sonego said.

“That gap underscores the change in inbound investment, which is down 17% by volume, even though values are up. Strength in the US economy had helped propel deals, a trend seen across the globe as investors went hunting for growth opportunities.”

Americans growing interest in Australian mergers

Likewise, the surge of SPACs in the US and their potential rise in Europe saw M&A linked to these acquisition companies spike in the first quarter of this year.

Private equity was responsible for AU$13.5 billion in the first half, more than 25% higher than last year (AU$10.8 billion) and ahead of pre-pandemic levels (AU$9.7 billion) in 2019.

Mr Sonego said the momentum seen in other global markets was finally lapping at Australia’s shores and the second half looked set to deliver volume as well as value.

“So far, the recovery has been uneven, with fewer deals but bigger values and a lot of enthusiasm that hasn’t always translated into transactions,” he said.

“But with world economies now opening up, and Australia in a strong economic position, the second half looks likely to justify the market hype.”

“We anticipate intense competition from both buyers and sellers: buyers looking for opportunities with the potential for growth and returns, and sellers looking for a strong bidder, good price and a quick result.”

The report is a six-monthly update to Dealmakers: Mid-market M&A in Australia 2021, produced by Pitcher Partners in collaboration with Mergermarket, an Acuris company.