M&A pro breaks down why the Australian M&A market softened in 2019
There are three main drivers for deal activity going forward, Richard Lustig, Baker McKenzie’s head of M&A in Australia, said after the firm released its fifth Global Transactions Forecast, which paints a gloomy picture of the global deal-making space for the next year.
The report, developed with Oxford Economics, projected that the value of deals will drop 25%, from US$2.8 trillion in 2019 to US$2.1 trillion in 2020. It also forecast that IPO proceeds will decrease 23% on the year, from US$152bn in 2019 to US$116bn in 2020.
Lustig said that the first driver for deals going forward is technological disruption as sectors and companies keen on remaining competitive will scramble to acquire advanced digital capabilities that they cannot develop in-house.
Another driver is shareholder activism, Lustig said. This will keep pressure on boards to restructure and be ready with their strategies.
Lustig said that deal-making will also be driven by “dry powder” in the private equity sector, as investors may seize opportunities created by market volatility to shore up transaction volumes.
Lustig also explained why there has been a weak M&A market in Australia this year, albeit slightly offset by currency exchange.
“Domestic M&A has softened in 2019, as the economic outlook is mixed and trade tensions weigh on business and consumer confidence,” he said. “Inbound deal making is expected to remain relatively upbeat, thanks to the sharp depreciation of the Australia dollar. As increasing trade frictions affect Australia’s main export markets in the near-term, we see total M&A declining to around $50bn in 2020, followed by a pickup in 2021-22 when rising stock valuations create more favourable conditions.”
Lustig said the exception to the slowdown has been Japan, where companies are selling non-core assets and making international acquisitions. This activity is reflected in Australia.
“Japanese investment into Australia has seen us working on a number of significant deals,” he said.
Baker McKenzie most recently advised Orora, which has agreed to sell its Australasian fibre business to a wholly owned subsidiary of Tokyo-headquartered Nippon Paper Industries for an enterprise value of $1.72bn.
