Regional Profile - Australia

• Population: 26m
• GDP $1,279 bn
• Inflation 1.4%
• Ruling party: Liberal-National Coalition
• Prime Minister: Scott Morrison
• Political leaning: conservative
• Composition: six states, ten territories
• Number of PE firms: 390

Source: IMF FY20 estimates & AVCJ

In Aug 2018, socially conservative Malcolm Turnbull became the fourth PM in a decade to be ousted from his position. Former treasurer and Minister for Immigration and Border Protection, Scott Morrison, has been in power since.

2019 witnessed much political activity. VIC retained Labor Premier, Daniel Andrews in Nov 2018 and in Mar 2019 Premier Gladys Berejiklian secured her third term in NSW. At federal level, the Liberal-National Coalition was re-elected in May 2019.

The year ended with political pressure meeting social uproar with the worst bushfires in decades . Deemed the ‘Black Summer’ the travel industry and wider economy was severely hit, further exacerbated by COVID-19.

Much of the Australasian institutional universe has toyed with the denominator effect. Crashing public equities forced the AUD 3trn (USD 1.96bn) superannuation fund community to re-evaluate their portfolios.

A new ‘Early Access Scheme’ enables superannuation fund members to withdraw from their pensions early. It’s estimated that hrough to 30 September 2020, AUD 29.5bn will be withdrawn. Capital will be needed quickly, potentially forcing supers to liquidate their assets to pay out.

Treasurer, Josh Frydenberg is imposing conditions on deals involving ‘sensitive national security’ businesses, even after Foreign Investment Review Board (FIRB) approval has been granted, regardless of transaction size. This has partially been introduced as a measure to counter coronavirus, but has been on the cards for some time, to be introduced into from 2021.

M&A Activity

Australia M&A activity sharply declined due to the COVID-19 pandemic, rising tensions with China and global economic downturn in 1H20. Australia recorded 554 M&A transactions worth AUD 75bn in FY 2020, generating the lowest value on Mergermarket record since FY 2013. However, dealmaking is expected to recover in the second half of 2020 in Australia as deals postponed during the outbreak might finally materialize and struggling businesses could present buying opportunities.

Key Data Points

Australia M&A market’s deal value in FY 2020 (AUD 75bn) decreased by 34.4% year-on-year. Inbound (AUD 45.1bn; 203 deals), outbound (AUD 28.7bn; 121 deals) and domestic (AUD 29.9bn; 351 deals) deal value plunged by 11.2%, 40.9% and 53% year-on-year, respectively. Deal count started to fall in 1Q20 (119 deals) and shrank further in 2Q20 (66 deals).

Consumer remains the largest sector in terms of deal value (AUD 23.7bn; 56 deals) in FY 2020, mainly due to large cap deals in 3Q19. Business services sector, where buyers favor the acquisition of smaller targets, once again recorded the largest number of deals (100 deals) of the fiscal year, with technology sector (74 deals) following suit.

Private equity buyout activity registered AUD 17.6bn in FY 2020, a drop of 37.6% over the prior fiscal year.