The Australian mergers and acquisitions (M&A) landscape has experienced a significant shift in 2024, particularly affecting the mid-market sector.
Understanding these changes is vital for navigating growth opportunities and potential exits in the years to come. While the post-COVID period saw robust deal-making activity, a range of factors have contributed to a slowdown this year. These include rising interest rates, discrepancies in valuations, and increasing concerns about profit sustainability.
The impact of macroeconomic pressures
Australia’s M&A activity has slowed in 2024, particularly within the mid-market. The main reasons for this deceleration include rising interest rates, valuation gaps between buyers and sellers, and concerns over the sustainability of future profits in certain industries. These challenges have led to lengthier deal processes, with many transactions facing delays or falling apart before reaching completion.
Despite these headwinds, private equity and other private capital sources continue to show strong interest in the Australian market. Funds are still available, particularly for businesses with growth potential. However, deals are now subject to greater scrutiny and longer completion times due to ongoing economic uncertainties. This environment highlights the need for realistic valuations and well-prepared financial documentation, as buyers are approaching transactions with more caution.
Key Deals and Trends in 2023-2024
In the past financial year, Holding Redlich has been involved in a broad range of M&A transactions across sectors such as real estate, financial services, technology, renewable energy, agribusiness, transport, and health and aged care. Some of their most notable transactions include:
- the acquisition of a renewable energy entity in Victoria for Risen Energy
- the sale of Australia’s largest insurance broker to Steadfast
- a joint venture between National Storage REIT and Singapore’s GIC for real estate assets
- the acquisition of a TV and film production business for BBC Studios
- the sale of Queensland-based regional airline Skytrans to Avia Solutions Group
- the sale of multiple residential aged care centres and retirement living businesses for Life Care SA
- the acquisition of two hydraulics and cylinder businesses for Questas Group, a portfolio company of Allegro Funds.
These examples underscore the diversity of industries where M&A activity continues, despite the general slowdown. Sectors like financial services, technology, and agribusiness have remained active, with deals often driven by consolidation or strategic expansion. Notably, non-bank lenders are becoming increasingly involved in M&A financing, offering businesses more flexible financing options, albeit at higher costs than traditional banks.
Aged care and faith-based sector consolidation
The aged care sector has emerged as a focal point for M&A activity, particularly as smaller faith-based operators seek to consolidate with larger industry players. This trend is driven by a combination of financial pressures, regulatory changes, and the abolishment of aged care bed licenses from 1 July 2024.
Religious organisations, which have traditionally been involved in aged care, are now divesting some of their operations while retaining an interest in how the facilities are run as part of their social justice missions. For small to medium-sized operators in this sector, this presents an opportunity to either acquire new assets or partner with larger players to secure long-term sustainability.
Recession fears and the outlook for 2025
One of the primary concerns driving caution in M&A is the global fear of an impending recession. Australia’s cost-of-living crisis, combined with high inflation and rising interest rates, has created a more risk-averse environment for deal-making. Consumer spending has been impacted, which in turn affects profitability projections for many businesses, particularly in retail, hospitality, and consumer services.
However, there is optimism that M&A activity will rebound by 2025 as economic conditions stabilise. A return to more favourable interest rate environments and an uptick in consumer confidence could renew market confidence, leading to a surge in deal-making. For business owners considering a sale or acquisition, it is crucial to stay informed about market conditions and maintain flexible growth strategies to adapt to changing economic realities.
Key Regulatory Changes: FIRB and ACCC reforms
Two key regulatory bodies, the Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC), are poised to implement reforms that will significantly impact the M&A landscape in Australia. These changes are particularly relevant for mid-market businesses with international interests or those engaged in industries subject to stricter regulatory scrutiny.
The FIRB reforms, announced on 1 May 2024, aim to streamline the process for foreign investments while enhancing the protection of critical infrastructure and sensitive sectors. Key changes include faster approval times, the introduction of fee refunds for unsuccessful applications, and greater scrutiny of investment proposals in sectors like critical minerals and technology. These reforms are designed to attract more foreign capital while safeguarding Australia’s national interests.
Meanwhile, the ACCC is introducing significant changes to Australia’s merger regime. Beginning 1 January 2026, Australia will move from a voluntary notification system to a mandatory notification regime for mergers that meet specific monetary or market concentration thresholds. This shift is expected to increase the regulatory burden on businesses engaging in M&A activity but will also provide greater transparency and competition protection.
These reforms mean more stringent oversight of M&A transactions, particularly those involving foreign buyers or operating in regulated sectors. It is essential to seek professional advice early in the deal process to navigate these complexities and avoid potential pitfalls.
The Role of Non-Bank Lenders in M&A Financing
Another notable trend in 2024 has been the rise of non-bank lenders in M&A financing. As traditional banks tighten their lending criteria due to economic uncertainties, non-bank lenders are stepping in to provide more flexible financing solutions. These lenders typically offer quicker access to capital and less regulatory red tape, making them an attractive option for businesses seeking to close deals promptly.
However, the trade-off is that non-bank loans often come with higher interest rates, and borrowers may need to refinance once their projects are established. This is particularly relevant in sectors like housing, where demand is outstripping supply, and non-bank financing is becoming a popular option for developers and investors alike.
As the Australian M&A market is undergoing a period of adjustment in 2024, with economic pressures slowing deal activity, opportunities still exist. By staying informed about key regulatory changes, such as those from FIRB and the ACCC, and exploring alternative financing options, businesses can position themselves to take advantage of a potential market recovery in 2025.
For business owners considering M&A, preparation is key. Ensure that your financials are in order, conduct thorough due diligence, and remain flexible in your approach to negotiations. As market conditions evolve, so too must your strategy for growth and success.
By Darren Pereira, National Chair – Corporate & Commercial, and William Kontaxis, Partner, Holding Redlich
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