Agility and creativity key to M&A success in 2023 as market cools

Fortune will favour the bold as challenging economic conditions present rare opportunities for savvy investors, according to PwC Australia’s M&A Outlook 2023: Industry insights series.

While short term macroeconomic headwinds and offshore financial volatility will spook some stakeholders, a closing of the valuations gap, more considered bidding field and subdued initial public offering market will mean strategic acquisitions will generate high returns, the analysis finds.

The Australian M&A Outlook 2023: Industry insights series looks at the key merger and acquisition trends of the past twelve months and predicts what’s next for dealmakers. The outlook series will include deep dives into key sectors including Agriculture, Financial Services, Infrastructure, Health, Technology, Media and Telecommunications, Energy, Utilities and Resources as well as Retail and Consumer.

The first instalment explores the overarching industry trends for this year, identifying five key drivers of success; defensible investments, value alignment, bespoke structuring, strategic reviews and portfolio renewal as well as continued take-privates.

PwC Australia’s Deals Business Leader Rob Silverwood said these trends suggest the rewards will be there for those who make M&A a core part of their strategy.

“These conditions create a once-in-a-decade opportunity for investors, but agility will be crucial,” Mr Silverwood said.

“Dealmakers will need to find ways to convince boards, committees and other stakeholders of new investment opportunities, with defensible and financially stable sectors the hot ticket items,” he said.

Economic headwinds neutralised by near-term tailwinds

With rising interest rates and inflation widely tipped to plateau by mid-2023, there is reason for optimism among Australian deal makers. This coupled with strong commodity prices and a return of international workers will aid the country’s economic Covid-19 recovery, buffering us from geopolitical turmoil.

“While global business sentiment may dampen as a result of impending recessions in the UK and US, investors will likely turn to Australia’s safer shores to spur market activity,” Mr Silverwood said.

“Similarly, Covid-19 caused a refocus on supply chain resilience, leading to a surge in Australian manufacturing sovereignty. Essential sectors such as healthcare, education, defence, energy transition and infrastructure will be attractive for investors, particularly when coupled with defensible assets such as IP patents and the ability to pass on costs.”

Consistency and creativity combined will drive value

“Investors want assurance and, more specifically, the confidence that an asset can sail through the inevitable peaks and troughs. They also want to preserve value in an uncertain market, so to this end, agility is a must,” he said.

“You will be rewarded for thinking outside the box and creating bespoke deal structures that protect both the buyer and seller.”

The analysis suggests that public-private partnerships and take-privates will feature prominently, with market distress driving opportunities, particularly in the retail and construction sectors.

Soft landing as market stabilises following record highs

While the deal market invariably cooled in 2022, both deal volume and value remained higher than 2020’s activity. This suggests a soft post-Covid landing, fuelled by cash-rich corporates, hungry private capital, infrastructure and sovereign wealth funds as well as lower valuations for potential targets.

“2023’s M&A landscape is not for the faint hearted, but with the right strategy investors will earn long-term success,” Mr Silverwood said.

About the data:
We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by Refinitiv as of 31 December 2022 and as accessed on 2 January 2023. This has been supplemented by additional information from Dealogic, Preqin, S&P Capital IQ and our independent research and analysis.