It looks like a busy start to the new decade for Australian dealmaking, with a flurry of M&A activity occurring in January 2020.

Early January’s transactions appear the most active for more than three years. This momentum has been driven by acquisitions activity in both the SME market as well as larger transactions. 

More upcoming major deals are expected to be finalised over the course of early 2020. Examples of these are expected to include M&A activity surrounding Webjet, Illion, Modern Star, Airtrunk, NAB and Caltex (an acquisition of Caltex would be the biggest foreign acquisition of a listed Australian company in more than two years).

Furthermore, multiple retail companies under administration are in the sales process. Harris Scarfe is attracting interest from potential acquirers and Jeanswest administrators are seeking expressions of interest by 31 January.  SCA’s construction services assets also went into administration before Christmas. 

Strong dealmaking momentum has been buoyed by market circumstances where buyout firms have a lot of cash to deploy. Consequently, an increase in demand and available capital can create conditions that pushes valuations of strong businesses higher.

M&A activity is expected to remain healthy in 2020, with refreshed investment in Australasia from a number of Japanese firms including Japan Post, Nippon Paint, Asahi Group, and Idemitsu Japan, who outspent Chinese dealmakers for a second year in a row in 2019. This can be partly attributed to reduced competition levels due to US-China tensions. 

Although the number of yearly Japanese M&A deals into Australia remains steady at approximately 20, deal values have seen significant jumps from just under USD 2bn in 2017, to USD 16.4bn in 2019. However, political uncertainty could cause hesitation in the completion of potential deals.

Also to be noted is that activities in the Greater China region will likely be calmer over the next few weeks due to the Chinese New Year Holidays. Uncertainties due to the coronavirus are also expected to impact dealmaking at the start of the year.  Whether the coronavirus represents a repeat of SARS economic impacted remains unclear, however, business and tourist travel in and out of China has already declined.