Tech-Driven M&A: How Adaptability and Innovation Are Shaping Australia's Deal Landscape

The insights from these seasoned dealmakers underscore the importance of adaptability, innovation, and thorough preparation in navigating the complexities of dealmaking in Australia & New Zealand. By leveraging creative deal structures, conducting rigorous due diligence, understanding macroeconomic and regulatory dynamics, and focusing on resilient sectors, dealmakers can successfully navigate challenges and seize opportunities in this dynamic market.

What’s happening in the M&A market at present, and how do you see that progressing in the year ahead?
Everything I say is very much through a tech sector lens, but observations equally apply to other sectors. And we’ve certainly seen an incline in deal activity in real time.
The tech sector is one of the most interest rate-driven sectors, next to REITS/real estate. So the upswing in interest rates in 2022 led to a massive de-rating of valuations, which changed the nature of deal activity. It went from a lot of capital raisings and M&A funding to mostly private equity-led tech privates in the public market. That’s because valuations had effectively halved overnight. But still, deal activity still remains strong, given that dynamic.
Other than executing some of those 2022 transactions in the first half, I’d say the balance of 2023 was probably the most muted activity we’ve seen in recent memory, largely because of the upswing in rate cycles. Against that backdrop, there was too much uncertainty, so everyone just sat on the sidelines.
During this time, there was probably a pipeline building in private equity – and corporates definitely had things they wanted to do. It just wasn’t the right time or they lacked conviction to go ahead. So 2023 remained quiet – at some point, people just packed up and said, from an Australian point of view, we’re on holidays.
2024 was different. There was a little upswing in activity in late 2023 – which people referred to as a Santa rally. It was almost like everyone decided they needed to do something in 2024. I think this was due to the almost universal acceptance that rates had peaked globally – and that amount of stability alone gave them the confidence that was lacking through most of 2023, even though interest rates appeared to be staying higher for longer.

How do you see M&A financing conditions changing over the next 12 months?
We’re seeing strong support for M&A funding, both from credit and equity investors.
From an equity market perspective, if the M&A strategy is well articulated, then M&A funding is very well supported. Another factor contributing to this dynamic is that in Australia, there’s been a real lack of IPO supply coming to market. There’s been a lot of capital returned to investors via M&A – so there’s plenty of appetite to put money to work through M&A funding.
As you’ll have seen in the press, the private credit market is in a real growth phase – it’s currently outpacing private equity. I know our own leveraged finance team have shown strong appetite in underwriting transactions of late; and the toolkit of global credit funds has expanded locally, e.g. offering ARR lends to high-growth software businesses.
I think it will continue. The main risk is if the key global economies, which have planned for a soft landing, end up having a hard landing. This could take us into recession territory.

More than half the world’s population is going to the polls this year. What impact do you see it having on dealmaking?
There’s a risk if there’s unexpected outcomes – but to be honest we’re not hearing a lot of clients talk about it in terms of it affecting their decision-making.
Going back to 2016, I recall that there were a lot of deals shelved when the markets were surprised by a Trump election win and the Brexit outcome. I feel like, post those two events, the market has become somewhat desensitised to surprising political outcomes. In fact, it almost expects some populist-driven or startling political result.

Globally, where do you see the big beneficiaries of cross-border M&A flow being in the next 12 months?
It’s likely to be Australia. If you think about the way both private equity and the big public market investor funds are set up, they’ve got regional pockets of capital, which includes the Asia-Pacific (APAC). This capital used to be heavily allocated to China, when it was in a real growth upswing and appeared by be a place that was open to doing business with western sources of capital.
This has shifted dramatically in recent times, with China cracking down on certain parts of industry – Alibaba being the most notable example. On the back of that political instability there’s been a lot of reweighting of those APAC funds across the region, and within that, Australia is certainly a net beneficiary. It’s seen as a low-risk, high governance place to do business.
From my tech sector lens, there’s been a real maturing of Australia’s sector as it relates to producing high-quality global companies. Our tech-sector companies have really come onto the map – especially considering this was a fairly small industry a decade ago. I’ve been working covering technology, media and telecommunications for more than a decade in this country and it really has come a long way in that time. We’re now on the radar of all the global software specialists, private equity investors, – all these types of offshore capital.
From an outbound perspective, when we’re talking to our Australian clients looking to expand globally, I’d say they’re still targeting English-speaking countries like the UK and the US. There’s a level of comfort and familiarity with the way they do business and their product strategy. For example, you don’t need to rewrite the product language.

From the perspective of a dealmaker, how is technology affecting the M&A landscape?
Tech facilitates efficiencies within dealmaking: it allows them to be done more quickly, and to even engage more deals concurrently. Covid helped people realised they could execute transactions globally without boots on the ground – at least through the whole process. People still travel for deals, partly to win hearts and minds – but only for a couple of weeks and not six weeks as they did previously.
If you flip that around, emerging technology also brings risks such as AI, cyber and General Data Protection Regulation. So on the one hand technology is speeding up deals, but its emerging risks are creating enhanced due diligence requirements. They’re not necessarily slowing things down, but just overlaying an additional area to focus on.