The Australian M&A Playbook

28 March 2022

HWL Ebsworth has today released its report on the Australian private M&A market: The Australian M&A Playbook 2022. Our report contains findings from an analysis of over 80 private M&A transactions in Australia from the past 18 months, including transactions in the heat of the COVID-19 pandemic.

While it is well-known that M&A activity bounced back and accelerated during 2021, the pandemic continues to impact the terms being negotiated and way deals are being concluded. Our report tells the story of the current state of the market and deal terms being agreed.

In particular, buyers are continuing to focus on completing robust due diligence investigations with particular scrutiny being placed on a target’s stability of earnings; supply chain risk; management of work, health and safety risks; and the availability of insurance for exposures arising out of COVID-19. The use of technology in deal-making has also grown exponentially with virtual data rooms, electronic signing platforms, video conference negotiations and remote transaction teams becoming the norm.

The prevalence of regulatory conditions remains a focus for parties with recent changes to foreign investment laws making Foreign Investment Review Board (FIRB) approval a common feature of cross-border deals. For example, in March 2020 the Federal Treasurer announced a temporary reduction in the monetary screening threshold for all FIRB approvals to nil. This effectively meant that all new investments by foreign investors required FIRB approval – the Treasurer’s concern at the time was that COVID-19 threatened economic security and the viability of critical sectors with foreign buyers potentially swooping in to acquire distressed assets without government oversight. As a result there was a rapid slowdown of foreign investors completing deals until the screening thresholds were lifted on 1 January 2021. However, on that date new laws were enacted which introduced a concept of a national security business and national security land. This cast a wide net that captured businesses involved in or connected with a critical infrastructure asset, telecommunications, defence or a national intelligence community or their supply chains. Commenting on these findings, HWL Ebsworth Partner, Matthew Nelson, stated “While M&A activity has returned to pre-COVID-19 levels, such regulatory developments have resulted in longer pre-completion regulatory review periods. We expect these extended periods to continue until after the Federal Government election.

On the flip side, deal terms have become increasingly seller friendly since the early days of the pandemic as parties have got a handle on what COVID-19 means for target businesses. According to Matthew Nelson, “This has resulted in a reduction of buyer friendly terms such as broad termination rights for material adverse change, more balanced representations and warranties and less reliance on earn outs to bridge the valuation gap between buyers and sellers.

Another feature of the private M&A market has been the capacity of warranty and indemnity insurers to meet market demands in an environment of tremendous growth in deal activity particularly in the second half of 2021. These capacity constraints saw premiums and insurer declinations increase above historical norms. During 2022, we are seeing more insurers adding underwriting staff and new insurers are entering the market so expect premiums to return to historical levels in the medium term.

Looking ahead, we expect M&A activity levels in Australia to remain robust during 2022 with private equity firms and corporate acquirers sitting on significant capital and remaining optimistic for the future. However, there will be macroeconomic headwinds arising from higher interest rates, increasing geopolitical uncertainty that may affect supply chains and an impending federal election in Australia which will challenge the M&A market’s capacity to maintain such explosive growth.

Please register below for an extract from The Australian M&A Playbook. To learn more about our findings, please contact a member of our M&A team.


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