MEDIA RELEASE 31/03/2016 FOR IMMEDIATE RELEASE

MID-MARKET M&A DRIVES AUSTRALIA’S GREAT REBALANCING ACT

Mid-market M&A continues to drive Australia’s great rebalancing act, according to the second issue of Pitcher Partners’ and Mergermarkets’ Dealmakers: Mid-Market M&A in Australia report. In 2015, we have seen an increased level of activity in non-resources sectors, along with merge-to-survive deals in the mining sector.

“Diversification, innovation and services are 2016’s M&A watchwords,” said Michael Sonego, Corporate Finance Partner at Pitcher Partners.“Tourism, technology and telecommunications, and business services will drive non-mining and related resources growth in the middle market.”

Michael Sonego also pointed to the impact of the current election year on dealmaking in 2016.

“Don’t expect a record year. Election years always result in reduced deal volumes as the market waits for political uncertainty to clear.

“What is pleasing is that our current PM has committed strongly to innovation, and he understands the value and importance of the mid-market.”

Key stats:

  • 2015 was the year of the mega deal, with 27 transactions worth a total value of AU$105.1bn constituting the bulge bracket;
  • Middle market M&A activity constituted 73% of deals despite a year-on-year decrease in volume and value;
  • Deal volumes slipped 19%, while deal values slipped 23% respectively on 2014;
  • Mid-market deals were impacted by significant reductions in energy and mining deals, together with a retreat in foreign capital and private equity;
  • Foreign investment in the mid-market decreased from 188 deals worth AU$9.4bn to 140 deals worth AU$6.9bn.

“The mid-market has shown resilience over the longer term, and as such we expect mid-market M&A will continue to represent 70% of deal activity throughout 2016,” said Pitcher Partners’ Michael Sonego.

“Mid-market firms are typically leaner, more agile and entrepreneurial than larger corporates, giving them an excellent edge for market expansion and lower investment risk.

“Additionally, mid-market firms are more likely to possess the capabilities or potential for operating on a global scale without neglecting local or national markets. This differs from small-caps and start-ups which may lack the depth of skill required for global expansion.

“This is why the mid-market is the engine room of the M&A deal market, and indeed, of the Australian economy as a whole. Real growth, innovation, and diversification away from mining and resources is happening in the mid-market.”

Ultimately, innovation is what will spur M&A activity in 2016, Sonego said.

“For example, major hotel chains are suffering under the weight of creative disruption from companies like Airbnb, giving the fragmented industry impetus to pool its resources and consolidate through targeted acquisitions to take on new competition and capture economies of scale.

“In technology we’re seeing a lot of cross-sector M&A: non-tech companies looking to diversify or upgrade their product and service offerings are achieving that through bolt-on acquisitions of tech firms.

“This enables companies to expand their sector presence, remain competitive, and stay ahead of the technological curve – rather than being rendered redundant as waves of disruption sweep across their industries.”

Sonego also outlined the criticality of mid-market businesses getting deal-ready for 2016.

“2015 reinforced the need for businesses to become ‘sale ready’ – with three out of five businesses needing to transition over the next decade or so, either from one generation to the next, or as part of a sale process.

“With 2016 shaping up to be a reasonable, if not record-breaking year in M&A, mid-market businesses need to get their earnings and supplier agreements in hand now to increase the value of their business to a potential acquirer.

“Waiting for 2016’s market and political uncertainty to die down will mean it’s far too late.”

For a copy of the report or for further comment, please contact:

Michael Sonego, Partner, Pitcher Partners, 03 8610 5485

Sabine Wolff, Media and Communications Advisor, Pitcher Partners, 0419 529 577

Su Chin Zhang, PR Executive, Asia-Pacific, The Mergermarket Group, 852 2158 9706