FY15 was a challenging year for the Australian economy, characterised by below-trend growth in the domestic economy and volatility in markets. There were significant falls in commodity prices, particularly iron ore, coal and oil as growth eased in Australia’s major trading partners, in particular China.
These factors no doubt contributed to the relatively low level of public M&A activity in Australia in FY15 despite global M&A being at very high levels.
However, conditions appear ripe for an increase in Australian M&A activity in FY16.
The Australian dollar has depreciated substantially against the US dollar to levels last seen in 2009, increasing Australia’s international competitiveness and the attractiveness of Australian targets. Inflation remains at low levels, as do interest rates, providing positive conditions for the financing of the business sector and M&A activity.
Globally, the US and Europe are showing signs of recovery, and M&A continues at a rapid rate with some very high profile deals announced in the first half of calendar year 2015 including Shell’s US$70 billion acquisition of BG and the US$45 billion merger of Kraft with Heinz.
There was a noticeable increase in deal values in Australia in the second half of FY15, with all 7 mega deals for FY15 being announced in this period. This trend has continued in early FY16, with a number of big ticket transactions being announced post-30 June 2015 including DUET Group’s $1.4 billion acquisition of clean energy producer Energy Developments and Brookfield Infrastructure Partners’ $8.9 billion acquisition of Australian logistics giant Asciano, which is one of Australia’s largest M&A deals on record.