Dealmakers say M&A won’t peak for at least a year

Brace yourselves. The roaring M&A trades of 2021 are just the beginning of an extended deluge of deals, with 60 of the most active dealmakers in our region predicting the best is yet to come.

Every February Pitcher Partners releases our mergers and acquisitions outlook, produced in conjunction with Mergermarket, which wraps up the year that was and outlines dealmaker expectations for the future. 

But this year something has shifted. We already knew that 2021 would make records, but despite the incredible year for trades and activity, dealmakers say we haven’t seen anything yet. 

Nearly half (48.3%) believe peak M&A will not be reached for another 12 to 24 months, while a further 28.3% expect record M&A and positive conditions to persist for more than two years. 

The finding, which we have released in advance of the annual survey, speaks to the unmatched optimism in the local market, with 97% of respondents believing Australia offers the strongest APAC economy for deals and the greatest opportunity for growth in the year ahead. 

ASX leads the way for M&A

To understand why this optimism is so well founded, we should look at the ASX, which is a bell-weather for activity elsewhere in the market. 

New data shows M&A led by ASX-listed bidders smashed through previous records this year, with 522 deals by listed buyers in the year to the end of November, worth $25 billion.

That compares to the full-year result of 492 in 2020 and 490 in 2019.

Midmarket deals dominated the activity by listed buyers, with 373 sub-$100 million deals, 36 in the $100 million to $1 billion bracket and five reported as $1 billion or more. 

So if deals are set to continue apace, where do we think they will land? 

Businesses are buying, not building

Firstly, there’s a shift underway in who is doing deals and where they are doing them. While the fourth quarter of 2020 was defined by opportunistic activity, for example, this year was more about the early movers and cashed-up buyers making fast deals.

The value of M&A for strategic advantage has never been clearer, and the impetus for business to buy rather than build transformation and talent has been heightened by macroeconomic trends from labour shortages to border uncertainty to supply chain challenges. 

But as we have warned before, a hot market creates a fear of missing out, so we expect more buyers to wade into the market while they can. 

New entrants that have been sitting on the sidelines are expected to mobilise early in the New Year, before competition from offshore bidders resumes and while there are still untapped targets in the market.

The market is moving fast and these buyers need to be dynamic. They can’t wait for the next board meeting or M&A call; they need to meet on short notice to approve deals so as not to miss them.

The second point to note is that the drivers of M&A remain unconventional. 

The pandemic is only the first of the seismic shifts driving M&A, with the proportion of deals driven by environmental, social and governance factors, including decarbonisation and offloading of stranded assets, growing in 2022 and 2023 and accelerating in the lead up to 2030. 

As insolvency appointments rise, this will create opportunities for some buyers and be distractions for others. Being clear on strategy and focus areas has never been more important.

And with the borders now — finally — more open, the attention that will be paid to Australian targets by offshore bidders will only grow.  

We expect growing international interest in Australian assets, particularly in the technology, fintech and new energy space, and there are plenty of SPACs and PE bidders who see us as relatively untapped market.

So after a hectic 2021, we can look forward to a frenzied 2022. There are bound to be some peaks and troughs in different sectors, but the outlook for Australian M&A is positive for any foreseeable horizon.