Resilience and Innovation: Navigating the Evolving M&A Landscape in Australia & New Zealand

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.

Despite geopolitical and economic turbulence, there has been an uptick in M&A activity in 2024. Do you expect to keep seeing that trajectory rise?
I am hoping that this marked improvement will continue for the rest of the calendar year and well into the next. 2022 and 2023 were challenging because of successive interest rate increases (amongst other things). But during the final quarter of 2023, we had a lot more inquiry; more files were opened; and more projects were kicked off.
This is probably because dealmakers and deal financiers have been on pause for too long – now they are much better at assessing risk and operating in uncertain economic conditions.
While we are clearly not out of the woods, we have seen some overseas central banks making less hawkish noises about interest rates. Perhaps not in Australia just yet.
At the same time, there has probably been a greater willingness by acquirers, particularly financial sponsors, to put forward alternative deal structures – and for sellers to engage with those structures.
I think we’ve gone through a period of significant uncertainty and inertia – now we’re seeing a decent level of activity which will hopefully continue.

Do you expect with the renewed focus on ESG that we’re going to see an increased scrutiny on dealmaking?
We don’t see ESG as having a major impact on the type or number of deals that we do – or how we do them. When we do see ESG, it’s usually imported, such as where an Australian target attracts investment interest from a large overseas company or institution. A lot of European and North American investors, for example, use ESG scorecards in their due diligence. I think it’s a bigger concern and has caught on more in those jurisdictions. Perhaps we’re playing catch-up.
As lawyers, we tend to only get excited about things when they threaten to become law, and that’s certainly increasingly the case with ‘hard’ ESG.
After COVID, we have had to contend with a mother lode of new regulation, not just relating to ESG. For instance, there has been the constant tweaking of foreign investment rules in Australia, including the introduction of a national security overlay. Of course, that’s not just here in Australia – most developed economies now have a similar national security assessment regime for any inbound investment. And now we’re expecting new merger control rules which will bring us into line with other developed economies.
So much to look forward to!

Where do you see cross-border M&A flows going in the next 12 months?
I expect we will continue to see inbound activity in traditional areas of strength for Australia, for example energy and resources – especially minerals and metals supporting the energy transformation. Given our size and abundant resources, we have a clear advantage. So, business as usual there!
But the focus won’t just be on extraction and farming. We have become very good at developing and using supporting technologies. For instance, we have a distinct advantage in food and agriculture and, consequently, an advantage in allied technologies – and the World knows that. So, there will be a lot of investment into technology companies supporting our fundamental primary industries (e.g. AgTech).
Carrying on the technology theme, there are less obvious areas which make Australia an attractive destination for overseas investors. For example, our MedTech and FinTech sectors are doing well. Maybe it’s the role played by CSIRO and other agencies over the years, but we certainly punch above our weight in technology.
Lots of tertiary institutions are commercialising technology successfully and we think they will continue to look for investment.
While we may not have as well supported a startup scene as some other countries, we nevertheless have an advantage because of our track record.
This has helped our economy function and thrive. Off the back of areas of great strength, like mining or food and agriculture, we have developed solutions which are very much in demand elsewhere in the world.

What are other trends that you’d like to share with other dealmakers?
We’re still feeling our way somewhat after COVID and working through the economic consequences that the pandemic delivered. There have been a few false starts. And there’s still a degree of trepidation with business owners taking greater care and spending more time getting ready for deals.
It was obviously a lot easier to sell a business a couple of years ago. Now, only really good, well-run and in-demand businesses sell with relative ease and for a premium.
Savvy owners are taking their time to properly prepare (which includes listening to lawyers and other advisors).
Because of that, we’re spending a lot more time writing reports, providing advice and helping businesses to present themselves in a way that makes them most attractive.
We’re not just polishing the proverbial – we’re helping make substantive changes to deliver improvement and better outcomes for clients. This, of course, entails a larger upfront investment, but it reaps rewards.
We’re also using technology a lot more, including the Ansarada platforms, and across deals of all sizes – even smaller deals. This is great, as it enables deals to be done more thoroughly, transparently and efficiently. Productivity is key to the economic future, we are told, so let’s start in a small way with how we go about our business. Ansarada has really helped.
The other theme we’re seeing is the rise and rise of private investment funds – not just private equity, but also long-term (or patient) capital, including providers with family office backing. There’s much more willingness with those providers to deprioritise liquidity in favour of alternative sources of long-term returns. They are pretty active in the Aussie mid-market.