Market Spotlight: Deal Momentum across Australia and New Zealand

By Robert Torio, Content Marketing Manager, APAC

Mergermarket data shows Australia’s M&A value in Q4 2020 amounted to nearly US$23.8bn over 169 deals, more than double the figures recorded in Q2 and Q3. Meanwhile, New Zealand M&A value in Q1 2021 has totaled US$3.9bn, surpassing the combined value of the previous three quarters.

Both countries are a stand-out among the OECD economies in their respective responses and significant economic recovery from COVID-19. While neither has avoided the severe economic impact, financial market volatility, and investment uncertainty that has afflicted global economies and financial markets, their respective economies and M&A activity have recovered strongly.

At a recent webinar hosted by Mergermarket and Datasite, dealmakers took stock of M&A Q1 2021 activity in Australia and New Zealand and provided insight into which sectors of the M&A landscape will present most opportunities in the second half of the year.

Michael Sonego, partner at Pitcher Partners led the discussion with panelists:

• Fiona Chalmers, Chief Corporate Development Officer, Computershare Limited
• John Farnik, Division Director, Macquarie Group
• Brad Lynch, Partner, Advent Partners
• Rebecca Maslen-Stannage, M&A Partner, Herbert Smith Freehills
• Iwen Chen, Head of Australia & New Zealand, Datasite

Upbeat mood for ANZ M&A in 2021

Expectations are fairly united that the economy will remain buoyant and M&A activity will be busy over 2021, well ahead of most other major economies that are still in the midst of severe health crises while their vaccination programs get underway in earnest.

According to the Deal Drivers APAC FY2020 report’s Intelligence Heat Chart, dealmakers can expect to see the most activity in TMT M&A across Australia & New Zealand, which recorded a noticeable number of ‘for sale’ stories (78 total) in H2 2020 – second only to China.

Almost 40% of attendees at the recent ANZ Deal Momentum webinar hosted by Mergermarket and Datasite expect the high levels of dry powder and PE activity to drive M&A activity the most in 2021. On the other hand, 30% of dealmakers see corporate carve-outs, divestitures, and restructurings to dominate the activity.

Lynch said that elevated levels of dry powder in the market with respect to private equity and venture capital bodes well for future deal flow, while Maslen-Stannage noted that in terms of corporate carve-outs, Herbert Smith Freehills is seeing the ESG theme come through because investors are now more focused on ESG factors. 

Managing valuations in volatile times

The panelists also tackled the difficulty of valuations in today’s highly uncertain and volatile times, considering whether it is a competitive advantage for any party (including advisors) or not. Farnik stated that although it is one of the critical questions that dealmakers always encounter in M&A, it has become enlivened due to the pandemic.

When asked about identifying the most important success factors in M&A in 2021 across ANZ, close to 50% of dealmakers said strategy and identifying and screening targets will be key. Meanwhile, about a fifth of attendees believe the ability to conduct due diligence remotely will help ensure success this year.

Technology and digitization helping to get deals done

Despite travel bubbles being explored between countries, there is still significant concern about how cross-border M&A transactions will be conducted where travel bans might not yet be lifted, especially key M&A processes.

Sonego said 2020 showed the market that if there is a desire to do a deal, we will find a way, as evidenced by remote due diligence and virtual ways of presenting businesses. He added that online meeting technologies certainly saved some deals from falling over but building new relationships without in-person meetings remains a huge challenge.

Chalmers shared their experience with remote virtual site tours that were streamed using an iPad in the hand of a representative walking through the various site areas as part of the diligence process.

Chen added Datasite is seeing more dealmakers who want technology to form part of the decision-making process early on, with AI and machine learning helping with formulating strategies by analyzing big data from previous deals.

More than half of webinar attendees believe due diligence would be the most enhanced by technology/digitization, while a little over 20% see the post-merger integration process benefitting the most.

The same question was answered by more than 100 M&A practitioners across Australia and New Zealand, as well as how technology might accelerate these processes. Learn more about the digital maturity and technological sophistication of ANZ's M&A, due diligence, and asset marketing processes from Datasite’s New State of M&A: Australia and New Zealand report.