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Deal volumes have ‘dissipated’, says new report

Investors have experienced contrasting deal environments over the last year within the merger and acquisition space, a new report has revealed.

user iconLauren Croft 16 February 2023 Big Law
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King & Wood Mallesons (KWM) has released its latest annual DealTrends report on the Australian private M&A market, showing how “quickly tides can turn” in the Australian deal-making environment.

Initial uncertainty generated by the pandemic was followed by strong deal conditions, according to the report, bolstered by favourable macro-level conditions, including low-interest rates, high levels of available capital and strong industry confidence.

However, KWM partner Matt Coull said that in the final quarter of the financial year 2022, these favourable conditions began to shift.


“FY22 saw conducive deal-making conditions — rivers of capital and favourable availability of debt saw median deal values double to almost $100 million, and the number of deals over $500 million also doubled to 28 per cent,” he explained.

“Fast forward six months to the end of 2022, debt is harder to come by and more expensive, so deal volumes and the pricing froth in the market has dissipated.”

The report noted that while buyers in FY22 were generally willing to meet the market in terms of prices, they have been doing so on terms that have, in FY22, featured increased conditionality, including third-party consents and added focus on cyber security and data protection.

The 2022 DealTrends Report highlights a range of other noteworthy trends, revealing that while deal values rose, deal conditionality also rose, including regulatory and third-party consents, evidencing that buyers were willing to pay higher prices, provided they obtained satisfactory terms.

The report also showed that foreign investment approvals also continue to feature prominently, with the ever-increasing complexity of the Foreign Investment Review Board (FIRB) regime requiring approval in approximately a third of all deals, a steady increase over a number of years. While some of this increase is attributable in part to higher deal values, FIRB’s new national security and critical infrastructure framework has also played a role.

“Recent months have borne out several high-profile cyber security breaches and data protection concerns, where consequences and visibility of breaches is high. Buyers are alert to these risks, and investment committees are increasingly requiring both legal and technical diligence on these issues,” Mr Coull added.

“Contractual protection is also top of mind, with over half of the deals surveyed having targeted cyber security and privacy warranties. These warranties are, with the right diligence, accepted by W&I insurers and are at levels approximately double what they were five years ago.”

Private equity also remained “highly active”, with over half of all deals featuring a PE participant, a feature of the market that has remained resilient throughout the COVID-19 period. Moreover, cross-border activity has remained resilient, comprising around half of all deals, with south-east Asian jurisdictions beginning to feature more prominently.

Further commenting on the findings of the report, KWM partner Anthony Boogert added that “fintech deals were hot” in 2022, with 11 per cent of all the FY22 deals at KWM in this sector.

“No doubt in no small part following Block’s $39 billion acquisition of Afterpay, which KWM acted on, and that exuberance was reflected in the wider M&A market in the first half of FY22,” Mr Boogert said.

“Those seller-friendly conditions have moderated in the second half of 2022, and those same fintech deals are now much harder to get away.”