M&A Predictor 2018: an eye on Australia | KPMG | AU
close
Share with your friends

M&A Predictor 2018: an eye on Australia

M&A Predictor 2018: an eye on Australia

A continuation of healthy activity in financial services, healthcare, industrial markets, and technology is on the cards, but there are also interesting pockets of activity in both the media and consumer markets to watch.

1000

National Leader, Corporate Finance

KPMG Australia

Contact

Also on KPMG.com

Man in hot air balloon looking through telescope

When we predicted the Mergers and Acquisitions (M&A) activity for 2017 in the Australian market, we said there would be robust deal volume. Our data suggested that 70-80 percent of that activity would come from the mid-market, and that prediction certainly played out.

The industries that we predicted would be active in 2017 unfolded as expected – financial services, healthcare, and industrial markets. And in the technology space we predicted, and saw, a lot of ‘cross sector convergence’ – something we expect to continue for the remainder of 2018.

This emerging trend of cross-sector convergence compliments the dominant theme of overall growth in the mid-market. The mid-market are looking to invest in joint ventures or build alliances with smaller companies that have built technology expertise – for example to develop new ways of driving sales channels. The dollar value of investing in these niche technology companies may be relatively small, but they are a precious commodity to larger businesses, being a key way to drive growth.

While hard to measure, we predicted there would be an increase in joint venture activity in 2017, as an alternative to acquisitions. In acquisitions, the measure of success can often come down to executing an effective integration plan, whilst joint ventures will focus more on aligning interests and bringing respective expertise to create value. For example, joint ventures are not as reliant on cultural fit, organisational structures, governance and reward, which are all critical elements in an acquisition.

Key sectors of activity in 2018

In 2018 in Australia, we are continuing to see ongoing strong volume and growth. The mid-market is particularly active in terms of the number of transactions underway. The activity is partly driven by the supply of funds from both a debt and equity perspective, where liquidity is strong. Private Equity, for example, has undertaken a significant level of fundraising (over A$7 billion) which needs to find a home.

The industries with activity continue to be consistent with last year’s theme – financial services, healthcare, industrial markets and technology.

In fact, financial services is evidencing a material uptick in activity right now. This is in part due to the increasing pressure on large financial institutions to divest non-core assets. Much of that is driven by regulatory challenges, as well as recent investigations into the prudent practices of banking and financial institutions. Some banks are seeing opportunity to divest parts of their businesses, such as wealth management and life insurance, which may be better run by other independent entities.

In addition, we are seeing, and expect to see more of, activity in the agriculture sector – largely driven through inbound investment from overseas. The nature of this investment reflects the theme of food security.

TMT still buzzing

In the Technology, Media and Telecommunications (TMT) space, there has certainly been activity so far in 2018.

Changes in regulations around media ownership have promoted some of that activity. Other activity has been driven by challenges in the commercial television space, and the trend for younger generations to use other forms of media to get access to programs, such as via Netflix, Amazon, etc.

We have also seen a lot of activity around sports broadcasting rights – such as with cricket and Tennis Australia.

These key deals could trigger a further review of content in the fight for advertising income, which in turn may see a repositioning of the landscape of traditional commercial media players, including the changing of shareholdings, the key stakes, and the opportunity for potential joint ventures or alliances.

Deals to watch

The space to watch for Australian deals for the remainder of 2018 is financial services. As the Royal Commission unfolds, those financial institutions that have already taken the stand may consider sell side activity as a potential response. In addition, there are still a number of institutions to be called, which could trigger further activity.

Energy and natural resources is another industry to watch. Commodity prices have largely either stabilised or improved over the past year, which has created a level of activity that we expect will continue for the next 12-24 months. More recently, we have seen interest in Santos from Harbour Energy, and divestment of coal assets by both Glencore and Rio Tinto.

Finally, the property market continues to demonstrate continued interest, particularly from foreign investors and institutional funds.

As interest rates show little sign of increase for the rest of the year, we may see developers and investors take advantage of the strong capital growth they have achieved in recent years and take money off the table. If this was to occur, their biggest challenge will be to find opportunities to reinvest in assets that can replicate these returns.

Connect with us

 

Request for proposal

 

Submit