“In addition to the substantial pools of private capital that will need to be deployed and the return of more stable economic conditions, a number of the key themes driving M&A are expected to continue, including capital investment in infrastructure, digital transformation, energy transition and the attention on critical minerals, as well as the ESG imperative,” he outlined.

Gilbert + Tobin partner Peter Cook agreed, albeit noting that certain market conditions should be viewed not as seasonal trends but as more permanent fixtures.

“Most would feel, in the last 12 months, [that] M&A activity has been rolling along the bottom in terms of activity, so hopefully in 2024, the only way is up, and I am optimistic that will be the case,” he reflected.

“While macro factors are still in play, such as inflation, higher interest rates and the geopolitical situation which affect acquisition decisions, the market should see the situation as a new norm.”

In June of last year, Lawyers Weekly explored what the coming 12 months would look like in the M&A space.

Private capital movements

In the private capital space, Mr Cook said, there is significant cash “or the often-mentioned dry powder” to be deployed. As such, he noted, corporates are “seemingly more open” to deal activity, whether that be by way of acquisitions or mergers.

VIEW ALL

“I think a complex transaction that may not have been realistic or worth pursuing in the past may well be explored now, and we are seeing that now with the Chemist warehouse transaction and the possible tie-up with Woodside/Santos and the Origin/Brookfield transaction,” he detailed.

“Obviously, PE has cupboards full of assets that are nearing their exit stage or have gone through it, so I would expect a lot of activity, probably more so in the second half.”

Who will be driving M&A?

King & Wood Mallesons partners Will Heath and Antonella Pacitti said they are anticipating that bidders from the US and Japan, as well as private equity bidders, “will be on centre court for deals Down Under” in 2024.

“With macroeconomic and other challenges, we expect parties to continue to explore novel deal structures – so more joint bids and cross-border scrip deals, for example,” the pair espoused.

“All of this will mean increased pressure on target boards to engage with bidders.”

“And, we shouldn’t forget activism, which we think will continue in 2024,” they added.

Energy transition and tech advancement

For DLA Piper partner Joel Cox, two key macro trends are driving deal activity right now.

The first is energy transition: “We saw strong momentum regarding capital raising by climate tech companies locally in 2023, and we expect this to mature to M&A activity in 2024.”

“The fact that the $15 billion National Reconstruction Fund will soon start investing and the incentives available in the United States under the Inflation Reduction Act make climate tech a key area of focus for many clients,” he noted.

The second is the “rapid” advancement of new technologies, which means that “many clients have a much larger addressable market or more strategic benefit for buyers”.

“So that makes them more likely to be M&A targets,” he explained.

More specifically on the technology front, Mr Cox said that defence tech is a “key sector attracting significant investment and where our clients are seeing strong sales growth and a lot of offshore investor interest for buyouts” and that US trade buyers and ASX-listed tech companies are more risk-averse in the current market, which limits competitive tension on deals at present.

“Private equity buyers are comprising a larger proportion of successful bidders in our deals over the past three months,” he mused.

Sector consolidation and swings

Ms Pacitti said her team expects to see a “theme of consolidation” in the mining and resource sectors this year.

“It’s a challenging operational environment for miners and resources companies: societal pressures, ESG obligations, regulatory complexity and permitting delays, coupled with some wild swings in commodity prices,” she listed.

“Those factors are creating a strong rationale for businesses to pursue scale and higher margin assets in order to survive, and as a result, we anticipate a solid pipeline of dealmaking in energy and resources mining businesses, not only from sector leaders but also across the mid-tier.”

Elsewhere, MinterEllison partner Louella Stone said healthcare is “a really exciting sector to watch” and one she predicts will see a continued upswing in transactions.

“These things are driven by the ageing population, the increased use of tech and AI in the healthcare sector, and, of course, the real advancements in genomics and the use of IVF and fertility treatments,” she posited.

“The advancement in genomics is a very exciting area to watch and will lead to transactional activity. It has the capacity to change the health landscape completely.”

Mr Heath said he and his team are “cautiously optimistic” about the year ahead, noting that certain big deals completed last year – including the BHP acquisition of Oz Minerals and the Newmont acquisition of Newcrest – “reflect a trend in activity in the mining and resources sectors, including inbound investment interests”.

“The outlook on interest and exchange rates may favour a continuation of that inbound activity, although you’d need to be the Oracle from Omaha to guess where commodity prices will go,” he said.

ESG

Further to Mr Jordan’s point about the “ESG imperative”, Ms Stone – in a post on MinterEllison’s website – noted that at present, Australia has “very limited” regulation pertaining to environmental, social and governance (ESG).

“The regulation in Europe and particularly France is far more progressed – in some cases, they have some positive duties. In the next 12 months, I think we will see a real proliferation of regulation in Australia and into the coming years,” she opined.

As such, when thinking about ESG, it will be essential for Australian companies to holistically consider ESG when looking at a transaction, Ms Stone stressed in the Minters web post.

“You need to look at it through a risk management and a value capture lens. If you are just looking at it through risk management, you can really miss opportunities,” she warned.

Distressed tech deals

Mr Cox also pointed out that distressed tech deals continue to be seen, including pay-to-play arrangements, recapitalisations, and “acqui-hires”.

“These deals were most prevalent in the first quarter of 2023 and slowed thereafter. But there was a 60 per cent decline in fundraising by US VC funds in 2023, which means raising capital is much more difficult for tech companies,” he explained.

“So, in our view, distressed deals are an inevitable part of the 2024 market.”

Regulatory scrutiny

In the face of key themes driving M&A, Mr Jordan said, the bright spotlight from regulatory authorities on deal activity will likely continue. This will, he said, have an impact on deal timetables as well as the overall execution risks.

“We also have looming merger reform driven by the ACCC (and now sitting with a Competition Taskforce), which, if implemented, will have significant implications for deals in Australia,” he mused.

Mr Cook supported this, noting that “arguably, increased scrutiny and intrusions” from the likes of the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board (FIRB) will impact transactions “from a timing and information perspective”.

Other considerations

There are also, Mr Cook continued, several ASX-listed companies that “probably shouldn’t be listed (given their operations and stage of development), so I expect good flow of take privates”.

“Another good thing for the market is debt markets are holding up, and financiers are looking to fund the right deals,” he said.

Ultimately, Mr Cook said, “sentiment is important”, as in all markets.

“A viable IPO market is important, and for the right companies at a realistic and right price, the window could be forced open.”

Looking ahead

Ms Stone reflected, on the Minters site, that while there has been a general downward trend in global M&A across the market, particularly at the larger end of the deal spectrum, “we are seeing momentum build in the pipeline”.

This is particularly so, she noted, in the mid-market and for certain sectors, “but deals are taking longer to do, and they are more complicated”.

“For a full return to transactional activity, we really need to see a stabilisation in interest rates,” she suggested.

In the coming years, the firm’s post continued, Ms Stone said that strong transactional activity will be seen in sectors that are “somewhat immune to the current economic and political conditions”.

“Those things will be driven by decarbonisation and the increase in the population,” she submitted.