The HLB Mann Judd Sydney M&A Annual Report FY2023 has revealed Australian merger and acquisition (M&A) deal activity was subdued in 2022-23 as higher interest rates and inflation forced up the cost of capital and cooled investors’ appetites for making acquisitions.

The report analyses M&A transactions by deal volume, pricing and industries over the 12 months to 30 June 2023. There were 1,077 deals completed in FY2023, down from 1,455 and 1,314 deals in FY2022 and FY2021, respectively. The number of deals across all industry groups (except utilities) was lower in FY2023 than FY2022.

The average transaction value fell to $92.97 million in FY2023, down from $121.30 million in FY2022. However, that deal size still sat higher than the average deal size of $80.38 million in FY2021.

Investors were more cautious about meeting vendors’ pricing expectations in FY2023, due to rising interest rates, a higher inflation environment and ongoing geopolitical factors.

The reduced number of deals across all quarters of the past year indicates that the deployment of capital has become more restricted. As the price of debt rose, some M&A transactions were put on hold in FY2023 until financial markets improved.

Buyers were more cautious about paying too much for acquisitions, which resulted in valuation expectation gaps between what investors were prepared to pay for acquisitions and sellers’ price expectations.

Reflecting lower deal values, the overall average multiple achieved for completed deals fell to 10.3x in FY2023, down from 13.9x in FY2022. However, average multiples varied among sectors. Average transaction valuation multiples rose in the consumer discretionary and industrials industries in FY2023 whereas, in contrast, average transaction valuation multiples fell in the consumer staples, information technology, materials and telecommunications sectors. Information technology and telecommunications are typically more sensitive to interest rates, so we saw valuation multiples fall.

One of the biggest M&A deals in FY2023 was Brookfield Asset Management and HRL Morrison & Co’s $3.64 billion purchase of Uniti Group. Another significant transaction was fund manager Perpetual’s $2.69 billion purchase of Pendal Group.

This article was first published in the 2023-24 Summer Issue of Financial Times.