Dealmaking in Australia’s mid-market slows in Q1 2019, with uptick expected through year end

May 9, 2019

Renewed momentum in store for the second half of 2019 as local dealmakers expected to return to the market following Federal Elections in May.

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M&A in Australia in 2019 was slower out of the gate than in past first quarters, with deal totals down 12% by volume and 11% by value compared to Q1 2018. Uncertainties – such as the impending federal election set for May, the fallout of the Royal Commission’s investigation into banking misconduct, and global frictions resulting from the US-China trade war – could all be contributing to the decline in investment activity as dealmakers sit on the sidelines. If history is a guide, however, dealmaking will gain renewed momentum in the second half of 2019 following the federal election, a trend observed during the last federal election in mid-2016 and one highlighted in research conducted earlier this year.

‘It is no surprise that there was a reduction in deals announced in the first quarter of 2019.  It is common for sales processes to slow or even to be put on hold until the outcome of an election is known.  There is a risk that uncertainty will erode value and therefore most vendors are comfortable to delay.’

In the mid-market, dealmakers completed 60 deals worth AU$4bn, decreases of 29% by volume and 13% by value from Q1 2018. However, several sectors bucked the downturn, including business services which saw a 120% uptick on deals in comparison to this time last year.

These findings were part of our research into mid-market M&A, presented in an exclusive newsletter Dealmakers: Australian mid-market M&A Q1 2019 update, released today in collaboration with M&A intelligence provider Mergermarket.

International interest continues to contribute to deal flow in the mid-market this year as foreign investors remain positive on Australia given its strong fundamentals, economic growth and political stability. This investment accounted for almost half of deal volumes and values in the mid-market in Q1 2019, and the vast majority of dealmakers surveyed in the Dealmakers 2019 research say foreign investment will be a significant deal driver going forward. Buyers from North America, Europe and North Asia continue to lead these trends and respondents expect renewed interest through the second half of 2019.

‘We are increasingly seeing interest in good Australian businesses, particularly from Europe, North America and Japan.  Bidders from these jurisdictions are accustomed to paying higher multiples so it is certainly an advantage to vendors if you can secure interest from offshore bidders’.

In terms of hot sectors, the Energy, mining and utilities, Leisure and Business services industries accounted for the most deals in Q1 2019. Agriculture, Transportation and Business services sectors saw the most year on year growth from Q1 2019.

‘Despite the overall downturn, it was pleasing to see a return to prominence of the business services sector to be back in line with longer term trends and we continue to see strong interest in good agricultural assets.’

Additional M&A data trends from Mergermarket show that in Q1 2019:

  • Overall Australian M&A declined from 280 deals in Q1 2018 to 246 in Q1 2019, with total deal values likewise falling from AU$19.9bn to AU$17.8bn in that same timeframe
  • Foreign investors accounted for 43% of deals and 45% of deal value;
  • European bidders accounted for 31% of deal volume and 22% of deal value for foreign buyers in the mid-market, followed by North American bidders at 19% of volume and 44% of value and Southeast Asian buyers at 19% of volume and 13% of value;
  • The top mid-market target sectors were energy, mining and utilities (22% of mid-market M&A volume), leisure (20%), and business services (18%).

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