Over the coming year, clean energy projects will play a strong role in the Australian mergers and acquisitions (M&A) space, according to a new outlook from HLB Mann Judd Sydney.
The firm predicted that M&A opportunities in hydro, wind, solar and biotechnology will emerge in the next several months, while IT, manufacturing and technology are predicted to continue to draw significant interest.
HLB Mann Judd Sydney suggested that venture capital and private equity firms are likely to be the biggest buyers due their access to capital.
However, the firm warned that higher inflation and interest rates, stricter regulations and ongoing supply chain issues could lead to an overall slowdown in M&A deals moving forward.
HLB Mann Judd Sydney corporate advisory partner Simon James stated that the restrained demand for M&A stemming from the pandemic has resulted in economic impacts which may continue to contribute to global market uncertainty.
“In many ways, the pandemic created an economic situation where many previously unthinkable factors were brought into play, from government stimulus programs, to an insatiable appetite – and need – for technology to enable activities such as remote working,” he said.
“A return to some kind of normality could therefore prove a type of double-edged sword for M&A, with a more conservative approach to spending and the need for rapid technological transformation becoming less urgent for some companies.”
Looking back at FY2022, HLB Mann Judd Sydney reported that 1,297 deals were completed, down slightly on the 1,314 transactions completed in FY2021, while the average transaction size increased to $126.30 million compared to $80.36 million in the previous financial year.
Moreover, the firm said it observed a redistribution in the size of deals in the last financial year with more deals above $100 million and less deals completed below $5 million.
“This likely reflects a decrease in the observed opportunism within the market experienced in FY2021 following the disruptions from the pandemic, which led to a higher number of smaller opportunistic deals being completed,” said Mr James.
On a monthly basis, HLB Mann Judd said that a smaller number of transactions were completed between February and June 2022 than during the same period a year earlier.
“This aligns with the time when supply chain disruptions worsened due to the escalating situation in Ukraine and COVID-19 emergency response measures,” Mr James explained.
Average transaction size was found to have increased significantly in the energy, healthcare, industrials and financials sectors, which HLB Mann Judd said suggested that these industries had not been as heavily affected by recent issues like other sectors.
Meanwhile, the telecommunications sector suffered a 60 per cent decline in average transaction size, while utilities experienced a fall of 44 per cent.
Mr James also highlighted healthcare as an ongoing focal point for M&A activity with COVID-19 likely remaining an issue across many regions for the foreseeable future.
“Those sectors which are still hampered by significant supply chain issues may be less attractive. The businesses that innovate and pivot their operating effectiveness will see continued growth and opportunities,” he added.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
