Cross-Border M&A Insights: Key Opportunities and Challenges for the Coming Year

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.

The past year seems to have seen a bit of an uptick in M&A. Do you think we’re going to continue to see that trend for the next 12 months?
There has been a bit of an uptick, but I put the emphasis on the ‘bit’.
There seem to be the headline deals, but not the volume of deals that we’ve seen in the past – like all things, the statistics will ultimately tell.
Last financial year is the one that’s underwhelmed the most of any I’ve seen, because I would’ve expected a really strong uptick given the pent-up demand for M&A and good fundamentals.
Sure, interest rates are a bit higher than they have been, but they’re not at ridiculous levels and debt is still way cheaper than equity.
On any analysis we should have seen a really strong year, and we haven’t. North America is strong, but Europe is weighed down by geopolitics in a much more significant way.
What’s happening in the Middle East and Ukraine has really had a dampening effect on European M&A.
Looking then to Australia, we get most of our foreign direct investment from North America by a factor. Then the next strongest market is Europe, and both have underperformed for Australia. It’s easy to understand why Europe lagged – because of those geopolitics.
But it’s hard to understand why there hasn’t been more North American M&A into Australia.
It’s head scratching because Australia also holds a very important strategic position, particularly for North Americans, because they can’t invest in China in the way that they used to.

Where are you seeing opportunities for cross-border M&A flow right now?
So the greatest beneficiary of M&A flow is the domestic US economy. It’s just continued to be strong.
Ten years ago, nobody would’ve believed the strength of the US economy today, but it’s been supported by the tech, energy, and health sectors. Notably, US policy settings have had no negative bearing on the volume of M&A.
Meanwhile in Asia, particularly China, investment has gone to Middle East, it’s gone to Africa, and it’s gone to South America in most recent years. The biggest beneficiaries of Chinese outbound investment have been those three places. If you think about geographies where once Chinese investment was strong into Australia, US, Europe, instead it’s really going into the middle of the world.
That’s very much been because of the Belt and Road Initiative, the development of infrastructure in those countries and partnering with a number of them in the way in which infrastructure is brought about and developed in those jurisdictions.

Where do you see cross-border M&A flow going in the next 12 months?
Who will be the beneficiaries and who will lag behind? For cross-border deal flow in FY25, I’d love to be qualified in Saudi Arabia. That place is on fire and you’ll see more inbound M&A there than you could have ever imagined a few years back.
Places that have no energy resources or a weak tech industry – and those embroiled in geopolitics – will be at the other end of the scale. You won’t see a wad of deals into Central Europe, Mexico or other parts of the Middle East as a result.

About 40% of the global population is expected to vote this year, how might those elections and subsequent policy changes affect M&A?
When you talk to people in the US and ask how will trade and M&A be different under Trump versus Kamala, they scratch around for something to say. The Republicans and Democrats have both got similar policies in relation to Asia. Neither are particularly focused on Asian growth in their outlook. Both are increasingly domestic focused.
Where it is interesting is geographies that are very dependent on the US. The Canadians surprisingly believe that it will not make a meaningful difference to the Canadian economy if Trump is re-elected. But US protectionism will definitely be felt in Mexico and probably the same in South America.

How do you expect to see the regulatory environment evolve in the next year and what will that mean for dealmaking?
I’ll take it in about four pieces, starting with ESG. I think we’ve gone past the zenith of ESG focus and are on a downward trend – although people won’t say it publicly and won’t even necessarily recognise it.
If you look at the statistics on ESG funds, they’ve underperformed – not across the board but in a lot of geographies.
Investors are happy to lose money for a while if it’s for a good cause, but they’re not happy to lose it forever.
A lot of people are still trying to pay lip service to ESG, but not in their investment committees. I think what you’re going to see is a gradual drop-off in the pressures around ESG, despite the fact that nothing changes in climate.
Number two is foreign investment regulation. Australia’s gone to some length making it easier for the Five Eyes and for repeat investors to invest in Australia, but to make it harder for critical infrastructure.
The exact same situation arises for CFIUS in the US. CFIUS is focused on critical infrastructure and for good reason, which is that cyber threats are only getting worse.
To come at it from a due diligence perspective, we’re now spending more time on those elements of an M&A transaction than we ever thought we would.
Deal timelines are significantly blown out when foreign investment approvals are needed – we all thought that deal timetables had blown out terribly five years ago or seven years ago, but they’re only getting longer and the market risk of doing a public M&A deal has blown out.
The third element is the ACCC. Australia’s always had the informal clearance system but is moving to a compulsory notification criteria in 2026. The plan is that at least 50% of deals will be cleared very quickly within a 30-day window.
For the deals in that easy category that’s really good. But for deals that have some questions on competition, it’s clear that these will take longer.
So there’ll be more deals notified and we’ll see an improvement for half the deals and we’ll lose ground for the other.
The fourth area on regulation is equity capital markets and capital raisings.
Australia’s IPO market has been quite flat for over two years, and while there are several reasons for that, a big one is the regulatory environment around being public.
It’s very hard to be public and any executive, given the choice of being in a good public company or a good private company, will take the good private company nine times out of 10.
There are three reasons for that: they can get paid more, regulatory burdens are smaller, and the media attention is smaller.