M&A Dealmakers in Australia & NZ Discuss Coronavirus Pandemic, Eye Future Uptick in Deal Activity Once the Economy Recovers
After Australia’s stock market posted its largest one-day drop since the financial crisis in March, dealmakers in the region discuss the downturn.
8 April 2020
The global market has seen some serious selloffs over the past decade, but nothing like what hit Australia’s stock market (ASX) last month. March 9 saw ASX’s biggest plunge since October 10, 2008, with the impact of the coronavirus (COVID-19) pandemic and the Saudi Arabia/Russia oil war serving as a one-two punch. Many of our clients are highly respected key opinion leaders in their communities, so I reached out to get a selection of opinions on the current situation:
Head of Business Development (Natural Resources): “My personal view is this [volatility] could give the M&A market a boost. There will be many companies and assets that will feel the pressure through credit markets, low commodity prices, etc., which combined with lower equity prices could create attractive opportunities for others who are better able to ride this downturn.”
Chief Financial Officer (Natural Resources): “From what we are seeing and hearing, there’s a lot of capital coming out of North Asia looking for low-hanging fruit across Australia.”
Business Development Manager (Natural Resources): “From our perspective the COVID-19 issue creates opportunity; the only problem is that our stock is down with the rest of the market. This doesn’t diminish our appetite or change our strategy. What it does impact though is actionability (will sellers of assets still sell in the current environment and be prepared to take a reduced price?) and pricing of funding (given market turmoil can we achieve reasonable pricing and terms for debt and equity if we need them?).”
Principal - Business Development (Retail): “On the one hand companies may become cheaper (though you need to have lower share prices for a lot longer), but on the other hand it is more difficult to raise funds.”
Manager M&A (Healthcare): “There are many potentially attractive assets at current prices; however it’s very much a wait and see environment.”
Head of Strategy (Finance): “The main impact we’ve seen is that processes are slowing down massively. I think this delay will cause activity in the market to be put on hold until there is more clarity."
Executive Manager M&A (Finance): “We’ve seen the coronavirus used as a rationale to pump the brakes a bit on acquisitions (from buyers), and we’ve also seen it disrupt some of our processes internally. Resources in Asia are very strained so it’s hard to add other things on top of the business as usual by asking them to engage on M&A projects.”
Executive Director (Private Equity): “We’ll be investing our time looking for opportunities to thrive on the other side of this crisis rather than just survive it.”
The downturn in the market is something even our Deal Flow Predictor couldn’t predict. Mergermarket data shows that Australia and New Zealand recorded a drop of -76.7 percent in M&A deal value so far in Q1 2020 when compared to Q1 2019 (USD 2.7B vs. USD 11.5B).
However, it’s worth noting that deal volume, in contrast, only dropped -35.8 percent over the same time period (97 vs. 151), implying that there hasn’t been a consolidation of deals as some were expecting.
Speaking with clients it seems that many deals forecasted for Q1 have been pushed back. Depending on what happens with the pandemic over the coming months, we could be looking into Q3 before things pick up again.
While deal activity has slowed down, adoption for deal preparation rooms has increased. With the delay in getting deals live, sellers and advisors alike are positioning themselves for divestment. This, in turn, has also whetted buyers’ appetite to use the DealVision tool while they sit on the sidelines, waiting for the right moment to pounce.
It's hard to predict how this will affect the market as some companies are seeing this as an opportunity while others are calling out for capital. The only certainty is the clear lull in activity across the board will last for several more months.
Max Jones sits in the Corporate Development team based in Sydney, looking after our Corporate and Alternative Investment clients across Australia. He has a long history of making clients achieve their goals in the most efficient and cost-effective manner and is well known in the VDR community.