Brexit triggers Aussie M&A slowdown

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Low M&A activity is likely to plague Australian business for the remainder of 2016, according to an analysis by professional services firm Grant Thornton released this week.

But demand for Australian businesses from off-shore acquirers is likely to increase again when the Brexit headwinds inevitably subside.

According to the study, 26% of deals completed in Australia involved international buyers, 15% of which were from the UK, with companies here likely to find more global buyers and investors looking down under, as they seek less volatile markets in the Asia region.

“Offshore demand for Australian businesses is being driven by a number of factors, including close access to high growth Asian markets, stable political and economic environment, low sovereign risk and opportunities to acquire innovative products and services that can be deployed into their home markets,” national head of Corporate Finance at Grant Thornton Australia Paul Gooley told Australasian Lawyer.

“Should we see a clear election result in both houses this weekend, we would expect that to be a positive for wider sentiment and deal activity and likewise once the short term volatility subsides from Brexit, the result can only lead to Australia being a more attractive investment destination for offshore buyers looking to diversify away from Europe.”

Herbert Smith Freehills partner Philippa Stone said that while this year’s M&A activity doesn’t quite match 2015’s mega deals, she expects Australia’s M&A activity to remain steady.

“Markets always oversell on a significant event like Brexit and in the short term investors may hesitate,” she said.

“However, I don’t expect Brexit will have any lasting impact on Australian M&A.  If anything, offshore investors looking for a safe market are likely to be more drawn towards Australia.”

In the short term, the report predicts that currency markets may add to the slower momentum of the M&A and Private Equity markets but that the mid-market is likely to see plenty of Private Equity funding available once the volatility subsides.

“In the ongoing low yield environment, Private Equity as an asset class, particularly investments focussed in the mid-market, continue to provide above market returns,” Gooley said.

“With the deleveraging that has been occurring since the GFC and the volume of retirement savings that are accruing in the system, high growth medium size businesses will in many cases have a gap in their funding structure that is well suited to private equity funding.”

Proposed changes to ASX listing requirements is likely to reduce Australia’s inflated IPO market, which saw record levels up until the end of 2015, Gooley said.

“Since this time, equity market volatility and uncertainty on the local economic and political fronts have certainly been the main factors in reduced IPO activity,” he added.
 

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