At a glance
By Gary Anders
For a time, it seemed that global mergers and acquisitions (M&A) activity in 2024 was destined to be subdued.
Weak economic conditions due to sticky inflation levels and high interest rates, geopolitical tensions, elevated asset valuations linked to record-breaking stock markets, and various actions by competition regulators to block certain deals from proceeding, weighed on dealmaking over the first part of this year.
Yet the slump didn’t last long. By the end of the first half of the year, global M&A activity appeared to be gathering pace.
According to M&A data from research firm Ion Analytics, global deal volume over the six months to the end of June was up 17 per cent year-on-year to US$1.62 trillion (A$2.4 trillion).
The raw M&A numbers don’t really tell the whole story. The broader rise in activity largely reflects an upsurge in business acquisitions in the US, the UK and parts of Europe.
Global M&A snapshot
The biggest deals in 2024 to date have included ConocoPhillips’ US$22.5 billion (A$33.3 billion) acquisition of Marathon Oil and Johnson & Johnson’s US$13.1 billion (A$19.4 billion) takeover of Shockwave Medical.
By contrast, M&A activity in most of the Asia-Pacific region has been noticeably absent, having declined to an 11-year low over the first half. Across South-East Asia, completed deals fell more than 41 per cent over the period, according to the Ion Analytics data.
In Mainland China, deals volume was about 33 per cent lower, while in Japan it was even more depressed, down by 40 per cent. Deals activity in Australia and New Zealand over the first half was about 5 per cent lower.
Australia’s – and indeed the world’s – total M&A number would have increased substantially in the first half of 2024, had miner BHP proceeded with its A$74 billion acquisition of Anglo American. Instead, after months of negotiations, the Anglo American board opted to walk away from the planned takeover in late May.
Brighter spots included India, Malaysia and Singapore. Singapore’s sovereign wealth fund Temasek announced in June it was investing A$300 million into the Australian exchange traded funds issuer Betashares.
Lower deals momentum
Boston Consulting Group (BCG) notes that its M&A Sentiment Index is currently in the low range, which suggests that decision makers are expecting below-average activity over the next six months.
The index draws on M&A insights from a data set of more than 900,000 deals and uses generative AI to analyse decision maker sentiment.
According to BCG, its index is revealing that deals momentum is not yet accelerating in all industries and sectors — although dealmakers appear to be more optimistic now than during the previous two years.
Regionally, momentum is strongest in Europe. By sector, energy, materials, and technology, media, and telecommunications are standouts. However, some dealmakers, especially in the Asia-Pacific and in the industrials sector, seem reluctant to pursue transactions.
“M&A has become part of every CEO’s strategy toolkit,” says Jens Kengelbach, BCG’s global leader of M&A.
“Yet amid economic uncertainty, concerns about inflation and monetary policy, and regulatory and geopolitical headwinds, it’s harder than ever for decision makers to formulate reliable plans.”
Australia shows resilience
Australian firm Pitcher Partners says that, irrespective of deal trends and macro impacts, positive sentiment towards the Australian market remains relatively consistent.
The firm’s 2024 Dealmakers Report, released in February 2024, pointed to cautious optimism for the year ahead, with an expected acceleration in dealmaking activity if economic conditions improved, and Australia’s mid-market (deals valued between A$10 million and A$250 million) is very likely to see consistent and expanding activity.
There are also expectations that more deals will be completed at the higher end of the spectrum.
Australian superannuation funds, offshore pension funds, sovereign wealth funds, asset managers such as KKR, BlackRock, Blackstone and other private capital groups are known to be circling data centre developers, healthcare companies, energy utilities, agricultural groups, education services companies, and transport and logistics operators.
Stephen Craig CPA, a partner and M&A specialist at Pitcher Partners Melbourne, says the value of deals being announced in Australia in the past six months has tracked at a consistent level to prior periods, with the mid-market experiencing only a slight decline.
“Good businesses are still selling, and achieving healthy valuations,” he says.
But he notes that buyers have been cautious as a result of persistent economic headwinds, such as higher interest rates, inflation, and cost of living pressures, as the recently released Dealmakers 2024 Mid-Year Report shows.
Countering that is the fact that stock markets have been hovering around record highs, and there is significant dry powder held by potential buyers — such as private equity and many Australian corporates — which is intended for acquisitions if opportunities arise.
“Buyers are typically taking a more cautious approach and are opting for more risk-averse acquisition strategies. There is little incentive for them to rush in,” he says.
“Also, they are doing more extensive due diligence so they can get greater comfort before completing a deal.
“International buyers continue to play a substantial role in Australian M&A making up about 39 per cent of M&A activity in Australia, and we’re seeing inbound interest from the US, Japan, and Europe,” Craig says.
Craig says active M&A sectors in Australia include the technology space driven by the acceleration of digital transformation across industries, with interest in AI, big data analytics, cloud computing and cybersecurity.
With many businesses contending with inflation and cost-of-living issues, Craig says he’s also seeing insolvencies bounce back from the subdued volumes in recent years, resulting in more distressed assets coming on the market.
Private credit is another sector that has seen recent M&A activity. In May, HMC Capital took a step into the private credit sector with a A$127.5 million buyout of Melbourne’s Payton Capital, which specialises in providing commercial real estate credit.
And in June the Australian Securities Exchange-listed alternative assets manager Regal Partners also moved into the private credit sector through a A$235 million acquisition of Melbourne lender Merricks Capital.
Dealmaking in Asia
Andrew Heng FCPA, group managing partner of financial services firm Baker Tilly Malaysia, says that while there are a range of deals happening behind the scenes, they are moving along at a slower than usual pace.
“I think, as a whole, in the Asia Pacific there has been a persistent problem with inflation, rising interest rates, and also the geopolitical tensions … affecting M&A activities.”
Heng says that while several companies have talked about making investments into Asia this year, no large deals have yet eventuated.
He refers to Tesla having previously stated it may invest in Malaysia and Indonesia, and China’s Alibaba stating it may either set up or acquire a large data centre operation in the region.
“I think a lot of companies are holding onto their cash at this point rather than spending,” Heng says.
“They are just playing a wait-and-see game in case there is some sort of correction in the market, when they can, potentially, get things under the hammer at a better price.”
Then again, Heng says asset valuations are holding up reasonably well.
“Most of those companies that are looking to sell or merge, I think their core business is still doing quite well. So, conditions haven’t really affected their valuation.
“But I would say it’s definitely a seller’s market. There is a lot of cash around, and there are a lot of private equity funds and companies flush with funds that are looking for things to acquire. It’s just that there’s not a lot to look at.”
Heng says hot areas for possible takeovers include data centres, renewable energy, and healthcare, adding that most transactions taking place are in the A$50 million to A$100 million range.
In Hong Kong, real estate transactions have been driving M&A activity, along with a wave of privatisation deals involving private equity firms taking over listed companies.
In April, the listed skincare company L’Occitane announced it would be withdrawing its listing from the Hong Kong Stock Exchange following a buyout offer from its controlling shareholder.
Another recent large privatisation in Hong Kong has involved China-based Sinopharm taking private the listed China Traditional Chinese Medicine Holdings.
Preparing for sale
Pitcher Partners’ Craig says that companies wanting to find a buyer need to ensure they are well prepared.
“Sellers need to be able to clearly articulate the value of their business, and its outlook. They will be required to provide detailed financial, legal and tax information, and ensuring everything is in order goes a long way to providing a buyer with the certainty required,” he says.
“Preparing for sale also includes identifying any value levers that you can use to improve value, such as securing revenue streams, or optimising your working capital.”
Craig explains that selling a business can be a lengthy process (particularly given the current cautious approach adopted by buyers) and it’s not unusual that the preparation can take several years to put everything in place. He says any changes should ideally be made at least 12 months in advance of a sale.
“Conducting a pre-sale review of your business can be highly advantageous. It can inform you [about] how a buyer may view and value your business, which may be very different from your own perspective. And secondly, it can also identify areas for improvement with the aim of maximising value.”
