Institutional investors continue to explore opportunities amid M&A slump

The outlook for mergers and acquisitions (M&A) remains subdued as tighter economic conditions drive more caution, according to the latest HLB Mann Judd Australian M&A report.

By analysing Australia’s M&A market, including deal trends, industry dynamics, and valuations, the firm found that depressed activity present in 2022 and 2023 continued in 2024.

Namely, the total number of deals slumped further to 945 in the financial year 2024, down from 1,190 and 1,487 in the prior two years.

Commenting on the data, Nicholas Guest, assurance and advisory partner at HLB Mann Judd Sydney, said: “The reduced number of deals across all quarters in FY2024 compared to FY2023 and FY2022 indicates that investors are continuing to take a cautious approach when meeting vendor pricing expectations in light of high interest rates, increased inflation, and ongoing geopolitical tensions.

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“As a result, some transactions continue to be put on hold as dealmakers prioritise extending their operating cash runway, delaying deals until market conditions improve, and pursuing those transactions that offer clear value add.”

However, Guest highlighted a large increase in the number of institutional investors, particularly from the superannuation sector, actively seeking investment opportunities, with environmentally friendly, green sectors front of mind for many.

“Overall, there’s a growing appetite for deals, but the market is still navigating economic uncertainties and geopolitical risk,” Guest said. 

Private investors, in particular, are said to be more cautious regarding M&A opportunities within the Australian SME segment.

“We anticipate private investors will be prioritising investments in ventures with strong business fundamentals, such as stable earnings and clear value propositions to optimise their portfolios amid the persistent high interest rates and inflationary pressures,” Guest said.

Interestingly, the report revealed that large businesses with available finance are seizing the opportunity to pursue mergers and acquisitions that were previously viewed to be overpriced and out of reach. 

Namely, the year ending 30 June 2024, saw an increase in the number of deals exceeding $1 billion, with 26 deals compared to nine deals in the previous year and 15 deals in FY22.

The average transaction value increased to $121 million in FY24, rising from $89 million in FY23. 

According to Guest, the trend may also reflect dealmakers prioritising deals with clear strategic advantages and long-term potential over short-term investments.

Elaborating on deal activity in FY24, the report revealed that Q1 and Q2 had a similar number of deals – 268 and 264, respectively – likely due to the push to complete transactions before the end of the calendar year. 

The number declined slightly in Q3 and Q4 – 205 and 208, respectively – while the overall average multiple achieved for completed deals decreased from 10.3 times in FY23 to 9.3 times in FY24.

According to Guest, the government’s commitment to meet 2050 net-zero targets could prove promising, potentially boosting activity within energy transition infrastructures, including the energy storage and distribution sectors, particularly among government-backed fund managers.

“This trend was evident in FY2023, when the Clean Energy Finance Corporation, a government-backed fund, invested in 50 new and follow-on transactions, committing a total of $1.9 billion to ventures aimed at reducing emissions across the Australian economy,” he said.