Overall deal volumes in the first half of the year declined 9 per cent from 1H23, totalling 416 transactions, according to new data from Pitcher Partners.
Despite this, deal values saw a slight uptick of 1 per cent, reaching $52.9 billion.
But it was Australia’s mid-market – comprising deals valued between $10 million and $250 million – which saw the largest contraction, falling 16 per cent to $7.96 billion in 1H24.
Mid-market deal volumes also experienced a pronounced downturn, falling 18 per cent over the prior period.
“Despite initial enthusiasm earlier this year, with 70 per cent of respondents in our February outlook survey planning to increase M&A activities, dealmakers are proceeding with caution,” Pitcher Partners Melbourne partner Michael Sonego said.
“The current macroeconomic environment, underpinned by interest rate unpredictability and persistent inflation, has reintroduced a degree of uncertainty in the market.”
However, Pitcher Partners asserted that the ongoing contraction in activity is not necessarily an indication of lack of opportunities. Rather, the firm underscored that the current environment could be conducive to strategic transactions.
“With valuations adjusting to more realistic levels, assets that were previously overpriced are now becoming accessible at more attractive rates. This is particularly appealing to private equity firms and strategic investors with the patience and capital to invest during a market downtown,” the analysis revealed.
This was largely consistent with global deal activity, which saw fewer deals (down 13 per cent) but higher values (up 23 per cent).
Sonego agreed that the data highlights a shift towards more strategic investments, with dealmakers prioritising clear strategic benefits and long-term objectives over short-term gains.
This change, he said, reflects a market where “quality trumps quantity”, and investments must be sufficiently compelling to justify associated risks and costs.
Moreover, Australia continues to attract offshore investors, particularly from the US and the Asia-Pacific region.
“We bounce around economically in a much narrower band, and politically, we are quite a stable, predictable economy and destination,” Sonego highlighted.
“It's this predictability that makes Australia so attractive.”
Offshore buyers completed $30.2 billion worth of deals, marking the second-highest half-year total in five years and accounting for a substantial 39 per cent of all M&A activity in the Australian market.
However, inbound mid-market M&As saw sharp declines, with deal values down by 46 per cent to $2 billion, and volumes down 44 per cent from 1H23 to 28 deals.
Looking ahead, Sonego believes that while high interest rates and sticky inflation will continue to impose constraints, they will also compel dealmakers to adapt and refine their strategies.
“The Australian M&A market is expected to remain dynamic, offering positive returns for well-prepared dealmakers.”
Sector watch
Looking at Australia’s M&A activity across each sector, energy, mining and utilities (EMU) emerged as the frontrunner, accounting for 21 per cent of total deal value.
Pitcher Partners said these findings highlight the increasing importance of ESG considerations in investment decisions.
This was followed by construction; while the industry’s deal volume was relatively low, at around 6 per cent, it accounted for more than 15 per cent of total value.
Financial services came in fifth, representing 12 per cent of total deal value and around 9 per cent of deal volume.
“Private credit deals in the financial services space, like HMC’s acquisition of Payton and Regal’s acquisition of Merricks may also be an indication of things to come,” the analysis said.
“The growth in alternatives asset managers has been driven primarily by a tightening of traditional bank lending standards and ongoing demand for alternative financing solutions. The landscape is ripe for consolidation as large players may look to acquire niche firms to broaden their asset bases and enhance their offerings.”
The tech sector has also experienced a surge in M&A, driven by the acceleration of digital transformation across industries.
According to Pitcher Partners’ analysis, Australian businesses are increasingly investing in tech firms to integrate advanced technologies such as AI, big data analytics, and cloud computing into their operations.
