Investors have sometimes written Australia off as a pure commodity play, which might deter those worried about the plunging price of raw materials. However, investors from China and Southeast Asia have been targeting sectors from agriculture to infrastructure. China also made several medical and consumer acquisitions in Australia in 2015, among them the 83% stake in supplements developer Swisse Wellness by Chinese baby food maker Biostime International for US$992 million.
Despite global stutters in the first quarter of 2016, the Hebert Smith Freehills report, Beyond Borders: The Future of Dealmaking, reveals that more than a quarter (28%) of global dealmakers predict that Australasian M&A levels will increase significantly in the next three years, while 43% expect a moderate increase.
In addition, Australian businesses are not only prioritising capital for M&A, they do intend to deploy it, with three out of four respondents in the report planning to make one acquisition over the next three years and, significantly, 57% planning to undertake two or more deals.
Andrew Rich, M&A partner at Herbert Smith Freehills in Sydney, says: “Last year, M&A records tumbled as boards across Australia, and indeed the world, boldly pursued target companies in a bid to achieve ambitious growth. However, that bullish confidence was tested early this year when global stock markets faltered and key economies softened, particularly in Asia.
“What we’re seeing though is that Australian businesses are undeterred and have retained their appetite for dealmaking, with some even seizing the opportunity to acquire cheaper assets and get a competitive advantage over their more cautious competitors.
“Savvy dealmakers know that the fundamentals that gave rise to a boon of activity last year – particularly in the second half of last year - are still in place, such as high availability of debt and equity capital. The lower Australian dollar, low commodity prices and distressed assets in energy and mining will drive M&A volumes, particularly inbound volumes. The various free trade agreements inked last year should also help to drive activity.”
While Australian businesses are looking beyond their borders to achieve their growth aspirations, they are focusing their acquisitive attention on neighbouring countries rather than looking further afield. In fact, half of Australian respondents looking to undertake cross-border deals are focussing on Australasia or South East Asia.