M&A Dealmakers Are Anticipating a Big Year For Middle-Market Dealmaking in ANZ

According to SS&C Intralinks’ Global M&A Dealmakers Report 2022 produced in association with Mergermarket, Asia Pacific (APAC) respondents are remarkably bullish about the next 12 months. Thirty-five percent anticipate a significant increase in mergers and acquisitions (M&A) activity over the next 12 months. Couple this figure with an outstanding 81 percent expecting to undertake middle-market deals within the next year and we can see this being a huge area of focus for dealmaking in the region in 2022. 

To gain a better understanding of the factors that will impact the middle-market in Australia and New Zealand, we spoke with Ben Yeo, director of corporate finance at Moore Australia, who specializes in middle-market M&A transactions.

Benjamin has 15 years of corporate finance and equity capital markets experience, including experience as an ASX-listed company director. Having transitioned from the role of head of equity capital markets at Phillip Capital Ltd. to director and national head of corporate finance at Moore Australia, Benjamin has an extensive local and global business network of corporates, ASX market and non-market participants, intermediaries (legal and accounting firms), private equity (PE) funds, institutional investors and ASX-listed and unlisted public companies.

SS&C Intralinks: Based on your vantage point at Moore Australia and the boards you sit on, what are some of the driving forces in Australia?

Benjamin Yeo: Digital transformation in most sectors has been catalyzed by COVID-19 and therefore is fuelling the Information Technology sector. The pandemic has also put under the microscope the Healthcare and Life Sciences sectors.  With the digital transformation that has occurred over the past 24 months, there will be a continued flurry of M&A activity in this sector.

With global supply chains becoming severed and the cost of freight and logistics climbing steeply, there has been a keen focus on local manufacturing, especially those businesses that have assets within Australia. This along with the multiple rounds of the Manufacturing Modernisation Fund is facilitating further stimulus into this sector.

Finally, the shift in consumers’ confidence in using e-commerce has led to a surge in last mile delivery services. This coupled with the consolidation of the international freight market is creating a strong international interest for cross-border M&A transactions in this sector.

What do you foresee will be the impact on mid-market M&A activity in ANZ given the latest Reserve Bank of Australia (RBA) announcements to maintain interest rates?

As we’ve seen the past year, the sustained business confidence will encourage further M&A activity and successful completion.

Many are anticipating the rate rise earlier this year (i.e. CBA now forecasting June). How will this impact the mid-market?

A rate rise will dampen the confidence within the mid-market. However, the likelihood of a short-term or sudden significant rate rise (greater than 50 basis points) is very low so confidence will remain, especially among those businesses that have limited debt on their balance sheets and are using cash/equity as opposed to debt to fund M&A activity.

What’s the current sentiment you notice from those in the mid-market around M&A activity and their plans for the rest of the year?

There is substantial interest to explore merger and acquisition activity still among both the stable and the fast-growing mid-market companies especially within those sectors previously mentioned.

What are some of the risks for those looking to sell their business in the current market? What advice can you share to ensure a smooth and efficient transaction?

Inflated valuation expectations are the biggest risk in this market. Everyone hears of the contact who sold their business for a ridiculous multiple; however, that is rare.

The key factor that enables a smooth business sale for any business, no matter its size, is middle management — if a business has confident, well-trained and capable middle management, the sale transaction experience is made substantially more efficient leading to a smooth and “enjoyable” process.

The supply chain continues to be flagged as an issue for many businesses in ANZ. Do you have any examples of how businesses are managing this effectively?

While it has been flagged that Australia will face supply chain issues for the next 12 to 18 months, a client of ours who imports products from international markets has found success through payment in full upfront and sticking to known and well-trusted suppliers. At the end of the day, it is all about building relationships with suppliers because those that do not have sound relationships continue to find themselves at the bottom of the order list.

And finally, are there any opportunities you see arising in 2022?

Environmental, social and corporate governance (ESG) seems to be gaining momentum for many reasons, including portfolio rebalancing and differentiation.

Infrastructure, Healthcare and Digitalization companies will be the majority of focus in 2022 with an increase in foreign interest now that borders have reopened. This will lead to competition and potentially higher multiples.