Despite a complex economic backdrop and the cost of capital rising, the report noted that bidders will continue to pursue their wishlist targets, with continued strong private capital interest coupled with increased consortium activity expected to fuel deal-making.

The Australian Public M&A report examines the 65 control transactions involving Australian targets listed on the ASX that were conducted by way of takeover bid or scheme of arrangement in the 2022 financial year.

HSF partner Nicole Pedler explained that Australian M&A volumes have never been as robust as in FY22.

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“Not only were the number of deals significantly up from previous years, but the value of the deals at the top end was also much higher, with 13 deals above $1 billion compared to just seven in FY21, and a five-year average of only six such mega deals per year,” she said.

“By the end of the calendar year 2021, the total deal value had already reached an aggregate of over $100 billion, setting a new record in Australia.”

According to the report, FY22 was an active year for consortia, as bidders came together in pursuit of larger targets. Four of the 10 largest deals involved a consortium bid, including the Brookfield Consortium’s acquisition of AusNet Services, the KKR consortium’s acquisition of Spark Infrastructure, and Sydney Aviation Alliance’s acquisition of Sydney Airport — the largest completed deal in Australian public M&A history.

“The significant size of the cheques these consortia were able to cut meant that no ASX-listed entity was immune from a takeover approach. Further, the use of consortium bids highlights the evolving and complex nature of the relationship among private capital sponsors, who are increasingly friends not foes,” Ms Pedler explained.

“Consortium bids will continue to be a feature of FY23 — private capital players teaming up with one another and with founders or major shareholders will continue to increase, as sponsors bring a relationship-focus to securing targets with deal certainty.”

The consortia bids also highlighted another trend: the desirability and scarcity of infrastructure targets, as the immense deployable capacity of superannuation and pension funds continued to search for assets that delivered long-life and stable cashflows, according to the report.

 “Consortium bids allow for the pooling of significant capital required to acquire high-value, sought-after assets, including critical infrastructure and infra-like assets, sharing the asset and spreading the funding burden among consortium members.

“Participation by super funds in larger infra-focused or infra-like public deals appears to reflect both their scarcity of opportunity and the significant cost of capital advantage for these funds relative to public markets. The increase in investment by super-funds in infra-like assets looks to continue to follow macro themes relating to an aging and increasing population,” Ms Pedler explained.

“This is echoed by announcements by Australia’s top three superannuation funds that they would increase their direct exposure to infrastructure and more ‘active’ private funds, and we expect super funds to continue their involvement in significant deals in FY23.”

The two most prominent sectors in FY22 by value of deals were Industrials and Utilities (37.3 per cent of all deals) and Information Technology (35.5 per cent of all deals).

In addition, 78 per cent of all deals in FY22 were launched with target board support, slightly higher than the levels seen in previous years.

The report also notes that the private equity story in FY22 was more complex than before. The proportion of announced private equity deals against total deals declined. However, not captured in that data is a dramatic rise in multi-billion-dollar indicative offers for “take-privates” that have not yet eventuated to announced deals, said HSF partner, Kam Jamshidi.

“Large take-privates are an incredibly efficient way for private equity to deploy capital. Big indicative bids in FY22 such as those by KKR and CVC for the likes of Ramsay and Brambles, respectively, highlight the desire by general partners to access those efficiencies,” he said.

“The complex economic environment and dislocation in valuations is a significant opportunity for private equity to do public deals in FY23. Active management of inflationary pressure, supply chain challenges and cost of debt, together with an opportunity for future multiples expansion, will entice private equity to make their moves now.”