Allen & Overy’s Global M&A Insights Q4 report showed a consistent increase in deal volumes despite geopolitical uncertainty around the world.
“Most markets remain remarkably robust in the face of a range of political uncertainties, not least Brexit, rising tensions in the Middle East, the North Korea stand-off, and the unpredictability of domestic politics in key markets, such as the US, Spain and now Germany,” according to the report.
“And yet we are experiencing the second-longest bull market on record as investors take heart from a number of powerful fundamentals – strong corporate cash balances, buoyant equity markets and continued ready availability of debt financing, despite gradually increasing interest rate rises in key markets.”
The data showed an increase in the volume of lower-value deals from 2016 to 2017. Deals in the US$500 million to US$1 billion range increased by 19.2 per cent year-on-year, while deals in the US$1 billion to US$5 billion increased by 6.9 per cent.
The volume of mega-deals, worth over US$5 billion, dropped by 13.2 per cent over the same period. This contributed to a decrease in overall deal values in 2017, but Allen & Overy Australia co-managing partner Geoff Simpson said the increased focus on mid-market deals was a positive driver for M&A activity.
“Investor sentiment remains relatively optimistic in Australia, and we are seeing real appetite for mid-market deals, which is similar to what is happening in other markets,” Mr Simpson said.
“In Australia I think that’s partly been driven by break-out mid-market focused private equity funds seeking out a greater volume of smaller deals, rather than compete with Chinese investors and global equity players for mega-deals.”
The report found that while the overall deal value in the Australian market was down 4 per cent on Q4 2016, the deal volume was up 16 per cent. Allen & Overy attributed this to mid-market interest from private equity funds, resources deals and the privatisation of government assets such as land registries.
“Australia’s resource market remains a key driver for our M&A sphere, with relatively high and stable commodity prices underpinning the more sizeable deals we’ve seen in Q4,” Mr Simpson said.
“While resources deal values are not as high as they have been in the past, hard commodities remain an attractive prospect for inbound investors in APAC; we’ve seen particularly strong growth in Japanese inbound investment in the Australian resources market.
“We’re also seeing continued interest in the privatisation of government assets with the sale of land registry operations in NSW and similar processes in South Australia and Victoria.”
A global law firm recently topped the M&A league tables for legal advisors in the Australian region in 2017.