M&A activity robust in Australia, but will face challenges in 2024

Following a drop in activity in the middle of the year, market confidence in M&A has returned in recent months. Corrs’ M&A 2024 Outlook predicts it will continue to be a busy period for public M&A in the next 12 months, characterised however by periods of instability and continued challenges in execution.   

Australian M&A activity will be strengthened by foreign bidders, as Australia remains a source of attractive assets, particularly given foreign exchange rates. Ever-increasing stakeholder expectations and regulatory pressures will continue to make environmental, social and governance (ESG) an influential factor in M&A deals.

Corrs’ detailed examination of the Australian public M&A market draws on data from the firm’s proprietary database of transactions, combined with in-depth research for the 12-month period ending 30 September 2023. 

According to Corrs’ Head of Corporate Sandy Mak: “Over the past 12 months we witnessed a surprising continuation of the high levels of activity we saw in 2022, boosted by a spurt of activity towards the end of the year. 

“Despite interest rate hikes and a challenging deal execution environment, we are still seeing steady activity; however looking ahead to 2024, we predict a more tumultuous next 12 months. 

“’Fragile’ is the best description of our outlook for M&A for the coming year as we expect to see continued challenges in executing transactions and a greater scrutiny on investment decisions by our bidder clients.  

“In terms of sectors, we expect to see that the energy and resources sector continue to dominate the Australian M&A landscape, having remained at the top of the table in terms of both volume and value,” Ms Mak said 

Commenting on the findings, partner Adam Foreman, said, “The last 12 months we’ve seen a number of contested deals, which shows that where opportunities arise for targets, that are attractive to businesses, or strategically important, there will be strong competition for bidders. Whether that is because of the particular subsector like critical minerals, or industry consolidation, both bidders and targets need to have strategies to deal with that. 
“Our prediction last year that bespoke structures would be crucial to deals has also proven to be correct, we are still seeing that sponsors remain open to, and are actively pursuing, novel and creative structures to help meet target and shareholder expectations and increase deal certainty,” Mr Foreman said. 
Other key trends identified in the M&A 2024 Outlook include that: 

• overall deal volumes were equal to those of the prior year – with both years representing the highest number of deals in a 12 month window in the last decade. However activity was markedly more pronounced at the beginning and the end of this year, with 30% of all deals were announced in the first quarter (October to December 2022) and in the last quarter (July to September 2023);
•  the number of deals that are fuelled by ESG drivers has significantly increased over the past two years, with the percentage of resources targets with a critical minerals interest rising from 28% in 2021 to 47% in the last 12 months;
• more deals remained uncompleted at the time of publication than usual, reflecting the late burst of activity and longer overall periods to completion;
• Australian bidders continued to dominate activity, accounting for 62% of all activity. However, foreign bidders came to spend big, with a higher deal value and higher premium paid on average compared to Australian bidders and bidders at large with an average deal value of $A2.5 billion.