Following an inconsistent start to the year for mergers and acquisitions, with some deals stumbling or failing to get off the ground in uncertain conditions, local activity picked up strongly in the back end of 2020. We expect this trend to continue into 2021 as a sense of greater certainty and business confidence returns to the market.
While the uncertainty and diminishing revenue as a result of COVID-19 caused hardship to many businesses, it created a buyer’s market for business acquisitions in some sectors. Dealmakers are seeing increasing opportunities to secure interests and position themselves for a post-COVID-19 era as more positive health and economic outcomes begin to emerge locally.
Some businesses have had the opportunity to build significant war chests as a result of a conservative approach, government stimulus contributions and reasonably buoyant capital markets in the second half of 2020. Businesses that have been able to take advantage of those factors in light of practical difficulties are primed for the new year. Some will look to make strategic acquisitions to secure parts of their supply chain in response to the risks highlighted by the pandemic.
Good opportunities also emerged for local buyers due to the temporarily increased obligations for foreign investment, which significantly reduced competition with international buyers. However, the lifting from 1 January 2021 of the temporary $0 monetary screening thresholds in conjunction with other reforms to the foreign investment laws taking effect, should see more foreign investors in the market early this year.
Equity capital markets were particularly active in 2020 with capital raisings, initial public offerings and ASX-listed companies successfully raising cash. The ability to raise more capital means that companies have been able to bolster their balance sheets in a manner that has enabled sustained operations and possibly even the ability to look for more acquisitions. It is expected that private equity will continue to be a driving force behind continued activity.
In the energy and natural resources sector particularly, marginal exploration projects are expected to become more prospective and levels of activity across the sector will increase as a consequence of rising commodity prices. South Australia investing in new technology around renewable energy and energy efficiency could also help propel M&A activity in this space.
Looking ahead into 2021, whether a strategic or financial buyer, or a prospective seller hoping to cash out, there are opportunities in the market for the right deal. It is expected that buyers and their financiers will be scrutinising the market position and underlying performance of targets very closely. Businesses considering sale, therefore, need to be mindful of this heightened focus and take the time to ensure their house is in order and ready for sale.
This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.
Daniel Jenkinson, principal in our transactions team
Direct Telephone: +61 8 8210 2265
Peter Kupniewski, principal in our corporate team
Direct Telephone: +61 8 8210 2223
Chris Floreani, principal in our transactions team
Direct Telephone: +61 8 8210 2251