For tennis lovers, this January in Australia marks the comeback of two former champions – Angelique Kerber and Naomi Osaka – from prolonged breaks from the game. For dealmakers, the big question is whether the M&A market Down Under can serve up a full recovery in 2024 following a deal rally just before Christmas.

On 18 December alone, two billion-dollar takeovers made the headlines. Australian management services company Link Administration Holdings [ASX:LNK] agreed a scheme implementation deed to be acquired by Mitsubishi UFJ Financial Group in an AUD 1.2bn deal, while building materials group Adbri [ASX:ABC] signed an exclusivity agreement with CRH ANZ and Barro Group, giving the company an equity valuation of AUD 2.1bn.

Only a week earlier, Sigma Healthcare [ASX:SIG] and CW Group Holdings, the holding group of pharmacy chain Chemist Warehouse, gave the green light to joining forces via a Merger Implementation Agreement to create a leading healthcare wholesaler, distributor and retail pharmacy franchisor, with a market capitalisation exceeding AUD 8.8bn.

The Christmas rush came in contrast to an otherwise lackluster year, which netted 899 deals in total, the lowest count since 2004. Total deal volume of USD 76.3bn for 2023, although only slightly below that of 2022, marked the third-lowest level in the past 10 years, surpassing only 2019 and 2020, according to Mergermarket data.

Road to recovery marred by slow progress

Despite 2023’s low deal count, there is no lack of opportunities in the pipeline. Both private-equity (PE) investors and multi-national strategic buyers are circling Australian Securities Exchange companies that appear undervalued, while some PE managers are sitting on assets they should have exited years ago.

It is just that things have been moving really slowly, as investors and businesses grapple with uncertainties. “It takes much longer to do deals, at least three times longer (than previously). Everything is more prone to the ‘stop, start’ mode,” one M&A advisor told Mergermarket.

Yet, there are still bright spots in the dealmaking world. As this news service flagged in mid-2023, cross-border deals are likely to lead the comeback for Aussie M&A. Inbound deal volumes more than doubled in 2023 from the previous year, hitting USD 41.3bn across 326 tie-ups, while outbound deals also increased in both volume and count, totaling USD 20.3bn via 208 deals compared with USD 14.9bn from 187 transactions in 2022.

Mining continues to dominate Australian M&A, with the industry racking up 98 deals in 2023 for USD 27.6bn, followed by retail and real estate. The biggest move of the year was a AUD 26.2bn swoop for gold miner Newcrest [ASX:NCM] by Newmont [NYSE:NEM] [TSX:NGT], a Colorado-based, US mining giant.

And it is not just the ‘safe haven’ of gold – investors are also focusing on the future of energy transition, driving interest in lithium to new heights.

Ho-PE springs eternal

Despite PE buyout and exit activity in Australia plunging to multi-year lows over the past year, an uptick in PE activities could herald the return of the M&A market.

PE buyout volume in 2023 was USD 7.2bn, the second-lowest number in the past 10 years and only higher than USD 4.4bn recorded in 2014, while PE exit volume slumped to USD 4.0bn, a 12-year low, per Mergermarket data.

PE managers cannot afford to wait forever. Those sitting on dry powder need to put capital to work, while those sitting on assets need to exit to realize value. Among PE-backed companies tracked by Mergermarket, with higher Likely-To-Exit (LTE) scores, many have already hired sell-side advisors, such as Partners Group’s Guardian Childcare, Quadrant Private Equity’s Affinity Education, Navis Capital’s Mainland Poultry, and Adamantem’s Hygain.

Whether these potential sales will fly really depends on valuation alignments and the availability of financing, say advisors. A lot has to be right for the return of the champions.

*Mergermarket’s Likely-To-Exit (LTE)/Likely VC Exit predictive analytics assign a score to sponsor-/VC-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing, or a de-SPAC transaction.

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Precious metal: lithium deals are breaking new ground Down Under