Australian public M&A report shows ESG and stressed industries will continue to drive M&A frenzy this year

Drivers of the Australian M&A surge in 2021 are continuing this year, with low interest rates, rising vaccination against COVID-19 and cashed-up private equity laying the foundation for further deal making. 

The continued surge in M&A deals this year will also be fuelled by rising concerns about ESG issues and ongoing stress in travel, leisure and hospitality industries, an analysis of Australian public M&A trends by global law firm Norton Rose Fulbright has found.

Deal making in 2021 surged in Australia with 58 deals at a total value of $131.2 billion, compared with 40 deals at $30.4 billion 2020. Of those 58 deals, 18 were mega-deals announced at a value of over $1 billion, including two of the largest deals recorded in Australian M&A history: the Sydney Airport takeover at over $23.6 billion and the acquisition of Afterpay at a staggering $39 billion in shares.

These findings are contained in Norton Rose Fulbright’s ‘Australian public M&A deal trends report’, which analyses deals with a value of at least $50 million announced during the calendar of 2021.

Norton Rose Fulbright corporate M&A partner Jeremy Wickens commented:

“We expected a boom was coming for M&A in 2021 but were surprised by the sheer volume and value of the deals announced. Low interest rates coupled with an abundance of cashed-up bidders created a competitive acquisition market and plenty of opportunities for deal makers.

“For 2022, we expect more ESG-influenced transactions as corporates re-evaluate their ESG strategies. We may also see opportunistic players target stressed and distressed companies in undervalued industries like travel, leisure and hospitality.

“Of concern though are local and international headwinds that may dampen M&A activity, such as the prospect of rising interest rates, inflationary and supply chain pressures, and the ongoing disruption caused by the Russian invasion of Ukraine.”

Despite 2021 being the biggest year for public M&A in Australian history, the proportion of acquisitions by private equity investors continued to decline. It sat at 10 per cent for 2021, compared to 15 per cent in 2020 and 19 per cent in 2019.

However, private equity investors were big spenders. Four of the 10 largest deals announced in 2021 involved private equity bidders, particularly when acquiring Australian infrastructure in order to generate stable returns for members. 

Given their large cash reserves, local and international private equity funds should continue to be big players in the Australian M&A market in 2022. The same should apply to major superannuation funds looking to deploy their vast capital into infrastructure and other attractive assets.

Historically strong sector metals & mining again topped the industries list for 2021, followed by software and services. The metals & mining industry is driven by high gold prices and a return to record iron ore prices, buoyed by high demand yet low supply in the Chinese market. 

The technology sector also boosted M&A activity in 2021 with high demand from businesses seeking to leverage digital transformation. Recent price corrections for tech stocks in the past six months though could lead to acquisition activity if valuations continue to fall.

Among other 2021 trends in the Norton Rose Fulbright deal report were:

• Foreign bidders declining in 2021, accounting for 43 per cent of all bids – a noticeable drop from 50 per cent in 2020. This was likely attributed to tightened foreign investment rules and a continued focus on national security resulting in more transactions being scrutinised by the Foreign Investment Review Board. 
• A return to “friendly” schemes of arrangements as greater certainty created a more cooperative deal-making environment, rising from 55 per cent of deals in 2020 to 76 per cent of deals in 2021.
• A decrease in hostile takeovers from 20 per cent in 2020 to 13 per cent in 2021. Though the jump in hostile takeovers in 2020 favouring quick and certain cash returns for investors has since declined, the 2021 rate was still higher than pre-pandemic levels, indicating hostile takeovers may continue to be a feature of the market.

Click here to read the full report.

Norton Rose Fulbright’s corporate M&A team has advised on game-changing M&A deals including:

• The $16.63 billion TPG / Vodafone merger – the largest Australian M&A deal of 2020
• Leading Asia-Pacific logistics real estate platform ESR’s acquisition of Blackstone’s Milestone logistics portfolio – the largest real estate deal in Australian history
• Advised Stanmore Resources Limited on its acquisition of an 80% interest in BHP Mitsui Coal
• The on-market takeover bid by Golden Investments for Stanmore Coal, the largest successful on-market takeover bid to be announced on the ASX in the past five years
• Advised 5G Networks Limited on the merger of its business with Webcentral Limited
• Advised PATRIZIA AG on its acquisition of infrastructure investment manager Whitehelm Capital
• Advised Sandvik on its proposed acquisition of Brisbane-based mine planning software company Deswik Group
• Advised leading learning software company Seertech Solutions on a major investment by Quadrant Private Equity
• Advised Shell on its sale to Global Infrastructure Partners of a 26.25% interest in the Queensland Curtis LNG (QCLNG) Common Facilities for US$2.5 billion. This multi-billion dollar transaction is one of Shell’s most significant commercial undertakings in Australia in recent years, and globally, it is one of the first significant acquisitions by an infrastructure player in mid-stream LNG assets.