Norton Rose Fulbright forecasts uptick in Australian M&A on release of 2024 market trends reports

Norton Rose Fulbright forecasts uptick in Australian M&A on release of 2024 market trends reports

• Energy transition, technology and healthcare to drive dealmaking
• Cautious optimism for global deal activity and Australian public and private M&A  
• Substantial private equity capital is available for investment domestically and in the region

Global law firm Norton Rose Fulbright predicts that energy transition, technology and healthcare will drive an anticipated strong rebound in Australian M&A activity this year once equity markets clearly signal their belief in the end of the current run of interest rate rises.

This follows a return to positive sentiment at the end of 2023 after a period of subdued activity in Australian public and private M&A last year.

These and other major themes are detailed in Norton Rose Fulbright’s Australian public and private M&A outlook reports, published today. They echo similar findings detailed in the firm’s recently released global M&A report, in partnership with Mergermarket. The Australian reports were compiled on the basis of the firm’s deal trend and data analysis, while the global report followed a survey of 200 leading market participants in C-suite and executive roles at multinational companies, large private equity firms and major investment banks.

Industries supporting energy transition, such as energy and resources, are predicted to perform strongly in both Australian public and private M&A, while technology and healthcare sectors are also pegged as ideal targets for investors in global and Australian private M&A.

Co-author of the Australian reports and Norton Rose Fulbright M&A partner, Jeremy Wickens, commented:

“Continued pressure on global oil and gas markets is forecasted as war in the Middle East and Ukraine continues. In turn, elevated pricing levels for oil and gas will make companies with exploration, extraction and processing assets high-priority acquisition targets. A renewed focus by global governments and the private sector on the transition to clean energy, and the reduction of greenhouse gas emissions since COP28, will have a large influence on transaction activity.”

The Australian public M&A report also found that foreign investment dominated deal value across Australia’s public markets in 2023 despite tightening foreign investment regulation. This trend is expected to continue into 2024 unless tempered by a material rise in the Australian dollar.

“Australia remains an attractive investment destination, particularly for North American and European dealmakers because of its stability and predictable regulatory landscape,” Mr Wickens said.

While Australian private M&A saw less activity during 2023, the market is expected to pick up in line with equity markets.

Norton Rose Fulbright Australian M&A lead partner Bryan Pointon commented:

“When equity markets clearly signal their belief in the end of interest rate rises, sharply increased dealmaking will follow. Some positive signs in the market to look for include increasing share prices and strong financial performance of the top ASX 200 companies. A more active global and public M&A market will likely open the floodgates and stimulate private M&A activity.

“There is substantial private equity capital available for investment domestically and in the region. We expect this combination of factors – a more stable inflationary and interest rate outlook, stronger equity capital markets and private equity capital – will also see foreign buyers returning with greater confidence to the Australian M&A market and overall increase in M&A activity.”

The firm’s analysis also revealed that Australian technology companies continue to attract strong interest from investors who are seeking opportunities to bid for businesses that were once out of reach.

Norton Rose Fulbright’s global survey findings support this trend and say that the technology sector is expected to see the highest growth in cross-border M&A activity in 2024, with 71 per cent of respondents identifying it among their top sectors thanks to pent-up supply and demand.

Artificial intelligence (AI) in particular has become a popular target for dealmakers around the world, with more than half (54 per cent) of large PE firms surveyed (and one-third of respondents generally) looking to acquire an AI business.

In Australia, the firm expects the technology and healthcare sectors to keep performing strongly and to lead a recovery in private M&A during 2024. However, this comes with a word of caution for potential sellers in the current buyer’s market. 

Deal analysis of Australia’s private M&A deals revealed a surprisingly high number of aggressive positions accepted by sellers where 10 per cent of deals had no knowledge qualifier on warranties and 12 per cent of deals had no time limit on general warranties. This was combined with frequent buyer-friendly deal protections including restraint periods of up to 5 years.

“The ‘market average’ needle has moved to favour buyers in the last 12 months. Organisations thinking about selling or divesting this year could be better prepared by being informed of the standard market positions and how to negotiate and manoeuvre those positions in their favour,” Mr Pointon said.