It’s not all gloom and doom in the mid-market

In calendar 2023, the volume of M&A activity in Australia has dropped, including in the mid-market.  However, it’s not all gloom and doom in the mid-market.  We think there are opportunities for transactions, particularly in the technology sector and with private equity and other private money having dry powder and capability to execute.

So, what’s happened in the mid-market?  With targets and investors engaging less intensely in a more difficult economic environment, we have seen mid-market deal volume dropping from the more buoyant market in 2022.  Similarly, our data in private M&A deals to 30 June 2023 illustrated that the private M&A market shifted towards a lower median deal value in both competitive and bilateral sale processes.^[1]

Where is the good news?  Deals have still been occurring in the mid-market, driven by a range of economic and industry trends.  First, with the US: AUD exchange rate favouring US bidders, we have seen strong cross-border activity from US acquirers.  Second, publicly available data on the mid-market shows material volumes of deals in technology, services and financial services sectors.  In the technology and services sectors, building scale and having access to equity funding for capital remain strong motivations for M&A through the cycle, while the revaluation of some technology and services companies in public and private markets has provided patient buyers with opportunities to shop.  Services also continued to be a large trend in Australia, with many businesses choosing to strategically consolidate their operations or embrace technological solutions to save costs.  

Of course, it wouldn’t be an assessment of mid-market M&A activity without a shout out for the competitive tension and strategic intervention that big resources companies and private capital players have delivered in the mining, metals and energy sectors. Continuing strong sentiment in critical minerals, coupled with a challenging reception from traditional bank funding sources and a volatile capital markets environment, have provided a playground for contested M&A. The mid-market seems to be the preferred spot for those who see at least short to mid-term opportunity in the evolving demand and supply dynamics of these sectors.

Will we see these trends continue?  We believe so. With an abundance of private capital circling around that’s needing to be deployed, as well as sophisticated buyers looking to capitalise on growth opportunities, we suspect the mid-market landscape may remain resilient in a more challenging macroeconomic environment.