M&A activity hits all-time highs as decarbonization and digitalization top dealmakers’ agenda

Australian mergers and acquisitions returned to full steam in 2021, following a drop in activity in 2020 as the pandemic took hold. Business activity in the country surpassed even the most ambitious forecasts, with a total of US$256 billion in deals announced during the year, by far the highest annual value on record, more than doubling from the previous record of 2007.

Transaction volume was also impressive, with 785 transactions easily surpassing the previous 2018 record of 643 transactions.

M&A activity in value 2006 – 2021
Target location: Australia Place of the bidder: Global Sectors: All sectors

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Unsurprisingly given the record deal value, mega-deals are at an all-time high in Australia. There have been 11 deals worth over US$5 billion announced in 2021 for a total of US$157.3 billion – the highest annual value and volume ever recorded on Mergermarket. The year’s top three announced deals were all worth more than US$20 billion, signaling a boom in confidence in the Australian deals market.

TMT sector attracts landmark deal

TMT continued to be the most targeted sector by volume, with 183 deals announced doubling the previous record from 2020. The sector attracted the most valued deal of the year: the acquisition of buy-it-now provider , afterpay (BNPL) Afterpay by US payment company Block Inc. (formerly known as Square). Worth US$26.7 billion, the deal is the largest takeover in Australian history.

Appetite for BNPL providers such as Afterpay, which provides small unsecured loans to consumers for free while charging merchants a fee to process transactions, has exploded during the pandemic due to an increase in online payments. . In the 12 months to June 2021, Afterpay’s revenue doubled to around A$519.2 million, while its number of active customers reached 10 million.

The energy transition generates business

Thanks to some mammoth deals, the Energy, Mining and Utilities (EMU) sector attracted the highest total deal value across all sectors in 2021. The value of EMU mergers and acquisitions has nearly quadrupled year-over-year to $64.8 billion, the highest annual value. checked in.

The largest transaction in the sector was the sale by the British-Australian mining group BHP Group of its oil and gas activities to Woodside Petroleum for 13.7 billion dollars. The departure of the world’s largest mining group represents a growing change in the global energy industry, as global players continue their transition to clean energy sources in a bid to align with the agreement of Paris on the climate.

The growth of Australia’s renewable energy market has prompted another landmark transaction in 2021: the US$13.3 billion takeover bid for electricity and gas utility AusNet by a consortium including Brookfield Asset Management.

Brookfield and its partners plan to invest heavily in AusNet’s power generation, anticipating the growing demand for electric vehicles and also the shift of home heating from gas to electricity.

Buyout groups target Australian potential

In line with global trends, private equity activity also soared in Australia in 2021. The total value of buyouts targeting Australian companies soared to US$71 billion in 2021, more than four times the previous record high of US$17.5 billion in 2018. Transaction volume also increased from 72 to 105 year-on-year, reaching the highest annual figure ever.

US buyout firms have been particularly active, as evidenced by the $4.6 billion acquisition of energy investor Spark Infrastructure by a KKR-led consortium. Spark’s power transmission and distribution network portfolio is seen as a high growth area as the country transitions from coal to a low-carbon economy.

Australian companies bet on overseas deals

Although increasingly the target of overseas operations, Australian companies have also become more confident in investing outside their borders. A total of 149 outbound deals were completed by Australian companies in 2021, a post-crisis high.

The most important of these transactions took place in the pharmaceutical sector: the takeover of the Swiss pharmaceutical group Vifor by the biopharmaceutical company CSL for 11.8 billion dollars. The agreement will allow CSL to diversify its portfolio with the addition of ten marketed products.

Yet it was the energy, mining and utilities sector that saw the biggest investment from Australian dealmakers, with $24 billion in overseas deals, the highest figure since 2006.

Investment firms such as IFM Investors have been particularly active in the sector, acquiring a minority stake in Spanish energy group Naturgy Energy through its Global Infrastructure Fund. At the time of the transaction, Naturgy had a portfolio of 4.6 GW of renewable energy capacity, including wind, solar and hydroelectric. The investment, valued at $2.8 billion, is seen as a bet on confidence in the Spanish renewable energy sector and further proof of the move towards energy transition.

Outlook

Given Australia’s uphill battle against the COVID-19 pandemic, the level of trading seen in 2021 has been unprecedented. A closer look at macroeconomic trends partly explains this boom in activity: Australia’s economy has weathered the COVID storm better than most, rebounding strongly in 2021 as effective COVID measures boosted consumer and business confidence. companies.

Transaction financing is also cheap and readily available. These low funding costs, combined with pent-up demand after the worst of the pandemic, resulted in a strong deal pipeline.

With the wind in its sails, Australian deals are set to continue their winning streak into 2022, with decarbonization and digitalization setting the M&A agenda.

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