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Australia top of list for international investors seeking mid-market deals

Dealmakers predicts increased M&A in Australia in 2020 given dynamic market opportunities and unique advantages in growth, legal environment and innovation.

Political and regulatory stability and low risk are Australia’s strongest advantages
Political and regulatory stability and low risk are Australia’s strongest advantages

Australia is ranked as the top investment destination among dealmakers within the Asia Pacific region and globally, particularly for mid-market deals valued between $10 million and $250 million.

In Pitcher Partners’ sixth annual mergers and acquisitions (M&A) report - 'Dealmakers: Mid-market M&A in Australia 2020' - the opinions of 60 domestic and international M&A dealmakers in Australia were canvassed for their first-hand insights and expectations regarding activity in the Australian mid-market in 2020 and beyond.

Pitcher Partners Melbourne corporate finance partner Michael Sonego said the appeal of Australia as an investment environment was clear.

He said: “This is due to our robust economy, sound fundamentals, dynamic industries and links to key global markets.”

Appetite for Australian assets

The appetite for Australia assets continues to grow with dealmakers considering further acquisitions following previous, successful deals.

Sonego said: “The report shows that those who have previously invested in Australia are more likely to invest again, with 65% of the dealmakers in our research this year considering further acquisitions in Australia.

“Another 30% said that while they are unsure of their next move, they noted that Australia stands high on their list of target destinations.”

Around 90% of people surveyed said Australia was their top choice as they searched for mid-market opportunities and a reliable market to make acquisitions.

Only 73% said the same regarding emerging South East Asia and even fewer said they were planning to invest in China (27%) in the year ahead.

Stable jurisdiction for foreign investment 

The report demonstrated that Australia’s positive fundamentals – strong economic growth, a transparent and robust regulatory/legal system, and innovative ecosystem across industries – are all possible draws for future investment.

Respondents pointed to political and regulatory stability and a sound legal system as key advantages, alongside the relatively low-risk environment, favourable valuations and the country’s culture of innovation.

Sonego said: “The stability Australia offers only becomes more important as each year ticks by, with trade disruption, political instability and now external threats such as the economic contraction led by coronavirus.”

The report also showed that the US-China trade tensions and UK Brexit situation would have a positive impact on inbound investment into Australia as a ‘safe haven’ market.

Responses when asked: In which of the following Asia Pacific markets will you be searching for mid-market opportunities in the year ahead?


Industry opportunities

In terms of industry opportunities, respondents said that technology, media, communications and tech deals would yield the most value but services-based industries were also gaining traction, with pharma, medical and biotech and consumer sectors also tapped to see increasing levels of mid-market M&A.

Sonego said: “There has been a lot of increased interest in the medical sector given the ageing population.

“We are seeing roll-ups in radiology, aggregation in dentistry and interest in allied care and we would expect to see that continue into the foreseeable future.”

Potential challenges

Around 50% of respondents highlighted the rise of social and environmental activism/unrest as one of the main obstacles investors will likely face in 2020.

Sonego said summer bushfires, which had raged in all states, were already acting as a wake-up call for businesses across sectors, with some investors looking to divest risky or devalued assets and others looking to invest in green assets to improve public perception of their environmental performance.

He said: “There are going to be implications across sectors for business, ranging from whether they are perceived in public and by the business community as doing the ‘right thing’ by the environment, to those who are looking ahead at what policy changes might come into place after the fires.

“The more people are exposed to the impact of climate change, the greater the pressure for the economy to transition and that will mean heightened deal activity.”

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