The M&A Boom Down Under

The article below is from our BRIEFINGS newsletter of 16 September 2021

As dealmaking surges across the globe, mergers and acquisitions activity in Australia is hitting new highs. We spoke with Goldman Sachs’ Marissa Freund, head of the mergers and acquisitions business in Australia and New Zealand (A/NZ), about what’s fueling the M&A boom and her outlook going forward.

What kind of M&A activity have you been seeing in Australia and New Zealand?

Marissa Freund: None of us can remember a market where there has been so much volume at such a material scale. So far this year, there’s been nearly US$200 billion of announced M&A transactions—more than three times the five-year average—making it the most active year on record, and we still have another quarter to go. In just the last three months, we’ve seen the largest deals in Australian M&A history across a variety of sectors: In natural resources, with BHP’s US$86 billion proposed unification of its dual-listed company structure and US$14 billion sale of its petroleum business to Woodside; in fintech, with Afterpay’s US$29 billion sale to Square; and in infrastructure with a US$23 billion proposed acquisition of Sydney Airport by a consortium of infrastructure and super funds. What’s more, we’re seeing a shift toward large-cap deals (given that roughly 80% of transactions reflect an enterprise value of more than US$1 billion) and a rise in competitive M&A bids.

What’s driving this activity?

Marissa Freund: It’s really a confluence of factors that’s creating an attractive environment for M&A. Strong equity valuations are spurring both buyers and sellers to capitalize on M&A opportunities, and the Australian economy is healthy thanks to accommodative policy settings. There was also potentially some pent-up demand after the M&A hiatus we saw during the first wave of COVID-19 in 2020. Against that backdrop, CEO and boardroom confidence is high, spurring corporates to reposition their businesses and portfolio mix to succeed in a post-COVID operating environment. After taking a cautious approach in 2020, buyers are drawing on dry powder to take advantage of the low-cost funding environment.

Many of these factors are similar to what we are seeing globally, but what differentiates the Australian environment, given the Australian compulsory superannuation regime, is that we are also witnessing the rising involvement of large pension funds. Particularly in infrastructure, super fund investors are increasingly looking at creative ways to put capital to work at scale both within and outside traditional categories. This class of investor is also behind the uptick in consortia involvement, particularly on public-to-private transactions, as we have seen with the Sydney airport takeover bid by a consortium. We expect these super fund investors to continue to be active in M&A.

What are you seeing in terms of cross-border activity?

Marissa Freund: Around 40% of A/NZ M&A activity this year has been cross-border. Inbound activity has been driven by both strategic and financial sponsor buyers. Meanwhile, there have also been large-scale outbound transactions by Australian corporates into new international markets, particularly in the tech space. And there is more opportunity to come. The amount of activity has highlighted the quality and attractiveness of Australian assets, and we are still regarded as a friendly place to do business, given the relatively stable regulatory environment, rule of law and strong economy, which weathered the global financial crisis and now the COVID pandemic really well.

Do you expect this pace of M&A continue?

Marissa Freund: In short, yes. We are seeing the tailwinds heading into 2022: Corporate balance sheets have never been stronger; financial buyers are keen to put their stores of capital to work; and interest rates are expected to remain low for the foreseeable future. That’s the perfect recipe for significant M&A activity in the next 12 months across all sectors.