Australia a ‘bright spot’ in global economic downturn, firm reports

By Naomi Neilson|20 October 2019

Australia has been hailed as a “bright spot” as the global economy suffers an ongoing uncertainty and risk of a worldwide recession, according to a Baker McKenzie report.

In its fifth edition of the Global Transactions Forecast, Baker McKenzie provided latest global trends on the deals landscape, including predictions for M&A and activity in IPO for 2020 to 2022, as well as a look at the financial drivers that underpin them.

Head of M&A in Australia Richard Lustig said: “Domestic M&A has softened in 2019, as the economic outlook is mixed and trade tensions weigh on business and consumer confidence. Inbound deal making is expected to remain relatively upbeat, thanks to a sharp depreciation of the Australian dollar.

“As increasing trade frictions affect Australia’s main export markets in the near term, we see a total M&A declining to around $50 [billion] in 2020, followed by a pickup in 2021-22, when rising stock valuations create more favourable conditions.”

The report noted that overall, 2020 will follow a similar pattern to 2019 with the macro-economic and geopolitical uncertainty, “putting a dampener of dealmaking” and seeing a slow down of IPO activity. There have been bursts of activity and it has predicted to roll over into 2020, due to “strategic or tactical corporate decision-making”.

The M&A market and IPO activity have slowed down modestly this year, however, there has been significant number of outliers to this trend, including in the Asia Pacific.

The report noted: “We expect more next year, even though overall global transactions activity in 2020 will decline further, given likely further turbulence in the global economy and renewed volatility in equity markets.”

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Amid the global slowdown in the transactions pipeline, Mr Lustig pointed to three main deal drivers for activity in the foreseeable future: technological disruption, activist funds and stakeholder capitalism and private equity dry power.

On technology disruption, Mr Lustig said: “Across all sectors, companies will seek to acquire advanced digital capabilities that they cannot replicate in-house.”

In the Asia-Pacific region, Japan has been the exception, as conglomerates sell non-core assets and companies look for outbound acquisitions. In addition, Indonesia and Thailand have seen stronger inbound activity.

On this exception, Mr Lustig said: “Japanese investment into Australia has seen us working on a number of significant deals, most recently acting for Orora Limited, in the entering of a binding agreement to sell its Australasian Fibre Business to a wholly owned subsidiary of Tokyo headquartered, Nippon Paper Industries Co, Limited.”

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Australia a ‘bright spot’ in global economic downturn, firm reports
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