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Australian economy shows signs of outperforming in 2021
The Australian economy is continuing to show signs of recovery, with merger and acquisitions tipped to surpass pre-COVID levels within 12 months, new research has revealed.
Australian economy shows signs of outperforming in 2021
The Australian economy is continuing to show signs of recovery, with merger and acquisitions tipped to surpass pre-COVID levels within 12 months, new research has revealed.
Following a tough year for Australian businesses, Pitcher Partners, in collaboration with Mergermarket, found that business activity has been quick to recover, leading to predictions that Australia could outperform its Asian counterparts.
Despite the impact of the COVID-19 pandemic, Pitcher Partners’ survey respondents give Australia an 81 per cent confidence score when asked to evaluate the current environment for merger and acquisitions (M&A’s) in the country.
However, a renewed confidence in the Australian market is unlikely to drive up prices, with businesses indicating they are likely to pay less, with nine in 10 respondents warning they will apply an additional risk premium to deals under consideration.
Commenting on the findings, James Beaumont, corporate finance partner at Pitcher Partners Melbourne, said that this year’s deal data underlines the scale of the recovery needed to propel Australia to where it was prior to the pandemic.
“Many respondents (62 per cent) expect Australian M&A to bounce back to pre-pandemic levels by the end of 2021 – and 38 per cent think this recovery could occur by the end of the first half of the year,” Mr Beaumont said.
“We found that most dealmakers unanimously agree that Australia’s tech opportunity is one that cannot be overlooked. 98 per cent say TMT deals in the mid-market will increase in the year ahead, an increase from 85 per cent who said the same in 2020.”
But signs of recovery are already being witnessed, with the second half of the year demonstrating a sharp increase in deal volumes, with deal values bouncing back especially strongly during the final three months of the year.
“Q4 saw $55.7 billion in deals, comparatively better in value terms than Q4 in 2019 ($25.7 billion). For the half-year ended 31 December, deal values increased 170 per cent in value ($68.8 billion) and 23 per cent (531 deals) in volume compared to six months in June ($25.4 billion, 432 deals),” said Warwick Face, corporate finance partner at Pitcher Partners Brisbane.
“Sentiment is particularly strong towards Australia’s mid-market (deals valued between $10 million and $250 million), with 65 per cent saying Australian mid-market opportunities are better than other markets. More than half (58 per cent) say they are actively searching out such deals.”
Mr Face noted that private equity could play a major role in driving deals in 2021, with 78 per cent of the surveyed dealmakers expecting funds to be more active in the year ahead.
“Many point to the record amounts of dry powder funds sitting on as motivation to enter the market,” he said.
“The Dealmakers report showed valuations may pose the greatest challenge to dealmakers in the year ahead, with half of respondents (50 per cent) saying the gap between buyers and sellers could prevent deals from moving forward,” Mr Face concluded.
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