While the Australian M&A market in 2017 didn’t quite have the stellar year of 2015, it did hold its own in delivering more than $3 trillion in announced deals. A late flurry of action in the last quarter of the year set the tone for strong activity in 2018. We anticipate the middle market in particular will be a good performer this year.
The private equity market continues to be very competitive, with new funds entering the market (Odyssey, Adamantem, BGH, Colinton Capital). An active private equity market will drive M&A growth as both domestic and international companies seek to build through acquisition, with the majority (65-70 percent) of transaction activity in the $10-$200 million transaction size In fact, 2018 looks like it will see the largest amount of capital raised by private equity since the GFC.
Strong inbound investment
Foreign bidders continue to play an important role. In spite of choppy US markets, the US maintains its position as the largest source of inbound M&A activity followed by Europe, with continued interest from European buyers looking to diversify away from Continental Europe post Brexit.
Chinese investors continue to look at Australian assets especially in the healthcare, food and branded goods areas, although finding health deals of sufficient scale is proving difficult. However, the days of the ‘wild card’ investor paying well over the odds are most likely over as capital outflows are restricted by tighter regulatory hurdles.
Food, lifestyle and health
With out-of-home food gaining a strong share of wallet, investors will keep an eye on food-related companies.
Following on from last year, activity around the car dealership sector is solid, with expectations of consolidations and roll ups continuing and we will continue to see the health sector generate strong interest particular with regard to health care providers.
Disruption and digital is high on the agenda for boards and c-suite with the technology sector continuing to be active across the market, ranging from early stage fintech to software, continuing consolidation and globalisation of the technology consulting sector.
The retail sector is a tale of two halves: on one side investors have been circling struggling retailers; on the other, investment in high-growth retailers is seen to be to be consistent. Watch the middle market for action. The perceived Amazon threat had a short-term dampening effect on investment. However, now Amazon is a reality, this has dissipated.
Mining & energy
Turning to the miners, the focus remains on gold and zinc – with zinc at a ten year high and gold a continued market darling. However, ongoing supply issues and production increases in the zinc market could shake things up. And while gold might be the darling of the industry, value projects of scale have all but gone. Coal will keep its momentum as reliance on it as a primary fuel source remains unchallenged. Despite this, solar projects continue to attract interest from specialist European funds and manufacturers of panels seeking to buy into projects.
The potential of Western Sydney
Geographically, in addition to the major markets, we’re also focusing on Western Sydney as an M&A hot spot. In key sectors such as infrastructure, healthcare, and building and construction, we expect to see mid-market companies seeking growth through acquisition in the region.
KPMG’s leading position in the M&A sector is underpinned by its recent Number One ranking (by deal count) in the 2017 MergerMarket financial advisory league tables in Australasia, Asia Pacific (excluding Japan) and Globally.