Published on the 27/04/2023 | Written by Heather Wright

Australia and New Zealand recorded substantial declines in deal activity in the first quarter of 2023 with declines hitting mergers and acquisitions, private equity and VC deals.

Data and analytics company GlobalData says Australian deal numbers were down 20.3 percent year on year, while New Zealand numbers plunged 44.4 percent.

Across Asia-Pacific deal activity – which includes all three categories of M&A, private equity and VC – was down 26.5 percent year on year with 3,549 deals announced in Q1, down from 4,831 for the same period a year earlier. New Zealand was the worst performer for Asia Pacific.

“March showcased some improvement, which could be seen as a positive sign.”

Globally, the company says deal activity was down 29.1 percent year on year.

It’s a similar story from Cut Through Venture’s Australian Venture Capital funding quarterly report for Q1 2023 as economic uncertainty, geopolitical tensions and even ongoing pandemic concerns weigh heavily. It notes that the startup funding scene saw its slowest start to the year since 2019, with the announced AU$661 million in capital raised across 82 deals, amounting to less than 50 percent of the funding reported in Q1 2021, and 20 percent of 2022 Q1 funding.

All deal sizes were also ‘significantly’ below 2021 and 2022 levels the report notes.

There have, of course, been deals forthcoming across Australia and New Zealand this year.

Notable deals so far include, FujiFilm Business Innovation acquiring Australian ERP and IT services provider MicroChannel Services in February as part of its moves to go global with its ERP play and PwC doubling the size of its Kiwi Salesforce practices when it acquired consultancy Be Intelligent in January. KPMG snapped up Adelaide SAP asset, work and project specialist firm Think180

Australian technology services provider Attura also acquired Microsoft partner Hammond Street Developments in January for AU$6.5 million, quickly followed by Somerville Group in a AU$15 million cash deal. The deals followed a $25 million raise in late 2022 which was specifically slated for acquisitions.

Aurojyoti Bose, GlobalData lead analyst, says while volumes were down for the quarter overall, there was some good news with deal volume rebounding 21.3 percent in March, after a month-on-month decline of 9.4 percent in February 2023.

“March showcased some improvement after previous months of decline, which could be seen as a positive sign,” he says.

PwC’s Global M&A Industry Trends: 2023 Outlook also paints a potentially rosier picture. It notes that while the economic outlook remains clouded with recession concerns and rising interest rates and the majority of corporate leaders (73 percent) are pessimistic about global economic growth, those same leaders – or at least 60 percent of those surveyed – aren’t planning to delay deals.

“Along with the need to grow, we believe that CEOs continue to eye M&A as a way to accelerate the digital and ESG transformation of their businesses,” PwC says.

Technology has been the most active sector for deal making in recent years, but PwC notes ‘the thirst for digital assets and capabilities remains largely unquenched, as fierce competition and high valuation multiples over the past few years have stymied the efforts of many companies wanting to make acquisitions’.

“Beyond boosting tech capabilities and the need to invest in the energy transition, companies are seeking to reposition themselves against competitors and a rapidly changing market, fill pipelines, reorient to new markets and more broadly reinvent themselves.”

The professional services company is forecasting that corporates with cash in hand and growth ambitions will be well placed in the year ahead, with the ‘significant’ increase in carve-outs expected to continue as companies recalibrate their portfolios and seek agility.

And while PwC notes that the high interest rates and challenges raising financing through leveraged loan markets have damped down the private equity market – with approximately US$2.4 trillion in hand – they suggest that might not be a long term issue.

“Private equity will find alternative ways to finance important deals and won’t stay on the sidelines.”

Some of the biggest private equity funds have raised credit funds, opening up new transaction avenues.

‘Some distress’, however, is expected as venture capital investors pull back and early stage companies struggle to secure further rounds of funding, PwC says. One likely exception according to the company: Climate tech investing.

“More than one-quarter of all VC funding is going to climate technology, with increased focus on technologies that have the most potential to cut emissions.”

Asia Pacific mergers hit an all-time high in 2021 as markets rebounded from the pandemic. The second half of the year saw a record breaking US$718 billion in deals across the region according to PwC.

Technology M&As figured strongly and continued to do so into 2022, when Australia too, had an extremely active start to the year, with EY declaring that Australia and the tech sector reigned supreme for M&As.

Australia clocked US$48 billion in deals for the first half 2022, an increase of 123 percent on the average of the last deal cycle of 2015-19, while tech was the most sought-after sector, accounting for 21 percent of cross-sector deals.

The company, which has yet to release its H2 figures, said at the time that Apac companies were ramping up their technology-centric evolution to keep pace with escalating consumer demand and growth in digital capabilities and increasingly turning to M&A to acquire the digital capabilities and scale they needed.