SMEs drive M&A activity even as volume and value of deals decline
6 March 2024 | Minutes to read: 2

SMEs drive M&A activity even as volume and value of deals decline

By William Buck

Small and Medium Enterprise (SME) transactions continued to drive Mergers and Acquisitions (M&A) activity across Australia even as the volume and value of deals in the Australian and Global M&A markets decreased substantially in 2023, according to William Buck’s Dealmaking Insights report 2024.

A wide range of factors including macroeconomic headwinds, as well as rising interest and inflation caused Australian M&A transaction value to decrease by 64% in 2023, reverting to pre-pandemic levels, after reaching record highs in 2021 and 2022. However, 80% of deals completed were between $0-100m, indicating the predominance of SME transactions in the market.

M&A deal volume also declined 31% year-on-year, from 1,022 to 708 in 2023, the lowest the transactions have been in the last decade.

Mark Calvetti, Head of Corporate Finance at William Buck said while the overall values and volume of transactions have decreased, the middle market is still very active.

“We are seeing a very active middle market for transactions, despite a decrease in overall volume and value in M&A activity, being guided by an increasing number of succession driven vendors looking to exit.

“We also expect increased levels of M&A dealmaking activity in Australia and globally over the next 24 months, in line with 2021 and 2022 levels. Deals will likely be done at lower valuations as large buyers continue their focus on profitability rather than growth through acquisitions,” said Mark.

Higher interest rates diminished enthusiasm among companies to go public on stock exchanges, resulting in a decline in initial public offering (IPO) transactions, as companies chose the path of privatisation, with ‘take-private’ transactions reaching 54 compared to 31 IPOs in 2023. We expect companies to postpone IPOs until economic uncertainty clears, ensuring more favourable market conditions.

Private Equity (PE) transactions in Australia and worldwide also experienced a decrease in 2023, as the aggregate deal value of Australian transactions decreased by 51%, while Venture Capital (VC) transactions also declined 46% year-on-year.

Despite these diminishing trends, Mark expects activity to pick up across multiple markets in the future.

“Foreign Private Equity and Venture Capital firms see Australia as a stable market with considerable opportunities, so we expect to see increased investment.

“In addition, as macroeconomic conditions and interest rate environment become more favourable, we expect companies that have delayed potential acquisitions or deferred their exits due to current market conditions will likely drive M&A activity,” added Mark.

William Buck’s annual Dealmaking Insights report for 2024 is based on comprehensive research into Australia’s M&A, IPO, PE and VC markets, covering 2023 and examining trends over the past decade. You can access our complete report here.

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