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Our Corporate Mergers & Acquisitions team at Burch&Co are proud to have assisted clients across an array of industries and sizes in 2023, ranging from SMEs to ASX listed companies.

In our observation, 2023 saw a marked decrease in M&A activity across the board, however, there was an upswing in market sentiment toward the end of the year, with positive indicators for 2024.

M&A Year In Review Focus

The median deal value in 2023 nearly halved compared to the FY22 period, as deals of value less than $25 million dominated the sector. This focus on smaller, lower risk deals reflects a more cautious approach taken by dealmakers globally in response to volatile economic and geopolitical conditions. This was further reflected in increased inclusion of ‘material adverse change’ clauses in dealmaking agreements.

Burch&Co supported 20+ SMEs across a range of sectors to successfully complete deals in this value range in 2023, with many more on the horizon for 2024.

Retrospective Look at the M&A Market in 2023

2023 was heavily influenced by local and global economic conditions, as well as increasing cybersecurity and political threats.

Consecutive interest rate rises across the year decreased the viability of debt funding for corporate transactions, increasing barriers to deals and reducing the overall enthusiasm to engage in M&A activity.

Global conflict and inflation trends further increased uncertainty around future economic conditions, subsequently decreasing appetite for high-risk deals, which drove trends towards lower-value transactions.

Rising awareness around data privacy and cybersecurity drove decision-making around market transactions. As 60 per cent of Australian organisations increased their cybersecurity spending in 20231, our observation was that businesses with established systems became more attractive targets for deals, while interest stalled in those that failed to meet security standards. In some cases, acquirers completed these deals once the cybersecurity failings were rectified.

Industries in Focus: Tech & Healthcare

As Australia’s technology sector continues to grow, the industry saw a trend towards ‘core capability’ focus in 2023 as companies sought to divest secondary assets. Overall, activity in this sector remained steady for the year. Continuing developments in artificial intelligence (AI) are expected to drive growth in technology investment in 2024, with mergers and acquisitions offering the opportunity for established businesses to grow their stake in this sector. The healthcare industry also experienced continued growth due to a renewed focus post-pandemic, which will likely accelerate in 2024.

Looking at the year ahead

2023 ended on a more positive sentiment with deal volume increasing and stabilising, creating optimistic expectations for the year ahead.

A stabilising global economy, coupled with pent-up demand for dealmaking following two years of uncertainty, is expected to increase M&A activity in 2024. In Australia, declining inflation and interest rates offer a more optimistic outlook in the Australian

Despite an anticipated increase in deal volume, we expect that deal value is likely to remain low as investors and dealmakers remain cautious while facing high capital costs. This may also be influenced by an increase in takeover opportunities of smaller enterprises facing tough macroeconomic conditions.

Developments in technology, particularly generative AI, have the potential to disrupt the dealmaking process as it makes more efficient processes possible, streamlining critical steps such as due diligence. This is expected to increase appetite for dealmaking globally, as it reduces barriers and risks to activity in all markets.

Social and environmental consciousness will play a more critical role in driving dealmaking decisions, with businesses taking more interest in green technology and prioritising deals that reflect a positive ESG footprint.

Regulator scrutiny will likely continue to impact market activity, forcing dealmakers to remain cautious and risk-averse, with conditions favouring experienced dealmakers who proactively engage with regulators. New proposed changes from the ACCC could reduce appetite for risk as dealmakers adapt to additional regulation.

In summary

While the cost of borrowing will cause dealmakers to exercise caution when assessing deal making opportunities in 2024, a more stable economy is likely to inspire more confidence and a more active market in the year ahead, particularly for SMEs and deals under $25 million.

Burch&Co is able to offer guidance and support throughout the whole of the transaction lifecycle for clients considering M&A pathways and growth opportunities.

Authors: Victoria Moffat, Associate Director and Ben Dodds, Paralegal

1 PWC Digital Trust Insights Report 2023

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