Record Private Equity M&A deals Targeting Australian Companies

Global private markets heavyweights like KKR in the first months of 2022 have targeted Australia with mergers and acquisitions. There have already been a record 61 deals worth $40.1 billion in the first five months of the year. The standout deal is the $30 billion bid for ASX-listed Ramsay Health Care by a consortium of investors led by US private equity powerhouse KKR that also includes HESTA, the super fund. It is a worldwide shift, globally the value of global PE-backed M&A transactions in the first five months of 2022 was a record $US471.2 billion.

The Australian deal value so far in 2022 is more than double for the same period in 2021. M&A activity has been fueled by record low interest rates in a rampant bull market environment which spiked buoyant investor sentiment. In total, the 263 private equity-backed M&A deals in Australia reached a market value of more than $100 billion, a level not seen before in 2021.

Private equity deals accounted for just over a quarter of all transactions across M&A markets by value this year, the highest year-to-date share on records that began in 2000, according to Refinitiv.

The value of global PE-backed M&A transactions in the first five months of 2022 was a record $US471.2 billion ($657.8 billion), up 14 per cent on the same period last year.

Private equity fund managers have a war chest of an additional $2.5 trillion in money raised by private markets fund managers that has yet to be used or dry powder, according to February data from S&P Global, close to record levels.

“Historically, a bearish market affects confidence, and a drop in confidence affects M&A, but we’re in uncharted waters here because of the sheer amount of capital that has yet to be deployed and needs to be deployed in order to make a return,” Sandy Mak, head of corporate at Corrs Chambers Westgarth. said.

The sources of private equity have expanded as evidenced by the giant deal for Ramsay Health Care. The deal is led by a global private equity giant in KKR, but also includes several sovereign wealth funds and local super funds.

Ms Mak said. in reference to the suitors, “They tend to look for businesses where the Australian operations are strong, but they also have operations internationally which they can grow and make a return on, and basically leverage their expertise internationally to make the business better.”

Despite the Russian invasion of Ukraine and rampant inflation forcing Central Banks to raise interest rates and sharp falls in growth stocks on equity markets deal volumes in the private equity space have remained elevated. Ms May said buyout firms sit on an “unprecedented wall of capital” raised during the pandemic,

These funds partly reflect record low interest rates that have depressed returns in fixed income and debt investments, intensifying the appeal of private equity among investors while also reducing the cost of borrowing to finance deals.

“The pandemic has given people a sense of confidence about being able to conduct M&A in tough times. And confidence is everything,” Ms Mak said.

“So if the market believes they’re going to be able to get through this high inflationary cycle with a bearish market, and people are still finding areas of opportunity for growth in returns, I think the M&A market will remain buoyant.”

Interesting times ahead and with Australia, in particular of course commodity and energy targets are also in the line of fire for buyers. The Australian dollar though rising is well of the parity levels seen 10 years ago.

Source: AFR

From The TradersCommunity Research Desk