Financial M&A Dealtracker 2020 - Grant Thornton Australia

FinancialAdvisoryM&ADealtracker 2020Australian M&A and IPO market insightsNovember 2020

Our key insights 04M&A deal volumes 06Sector composition 08Top 10 deals in the 18 months to June 2020 12The buyers 14Top 5 cross-border inbound deals 17Australia’s core M&A: mid-market business 18Investment managers 20Valuation multiples by target size 22Valuation multiples by target sector 24Domestic vs international valuation multiples 26Corporate M&A versus IM valuation multiples 28Share price performance of listed companies by target sector 31IPO activity in Australia 34IPO size by sector 37Top IPOs in each sector (18 months to 30 June 2020) 38Listing multiples and immediate price returns by target sector 39Private equity story 41Working together 43Depth of experience 44Corporate finance services 45Mergers & aquisitions 46Transaction advisory services 47Valuation services 48Financial modelling services 49Methodology 50About us 51

Welcome to the seventh edition ofDealtracker, our analysis of the Australianmergers and acquisition (M&A) andequity markets. This edition coverstransactions during the 18 month periodfrom 1 January 2019 to 30 June 2020.Dealtracker 2020 3

Summary of findingsOur keyinsightsDeal activity affected by PandemicOverseas acquirers remain relevantDeal volume up to 31 December 2019 wasstrong with a record number of dealsreported for CY2020 over the historyof this publication. The level of activitydecreased significantly during H1 2020 asthe pandemic took hold falling to levelsnot seen since 2017. At the issuance ofthis report, there has been an increasein activity levels as participants start toconsider a post pandemic period despitethe uncertainties that remain. This interestis particularly focused on technologyenabled opportunities that may benefitfrom the shift in consumer and employeebehaviours post pandemic.Overseas purchasers comprised 29%of transactions, down from 31% in theprevious Dealtracker period to reversethe upward trend evident in prior years.This reversal can be attributable to thechallenges faced with cross borderdeals since the commencement ofthe pandemic given travel restrictionsand foreign investment regulatorytightening. Notwithstanding theseheadwinds, their remains appetite foroverseas acquirers to continue pursuingAustralian assets aided by the use of dealrelated technology and a willingness toaccommodate the extended approvalprocess.4 Dealtracker 2020

Investment ManagersDeal multiplesInvestment Manager (“IM”) activitycontinued to be strong during the perioddespite the overall pandemic relatedslowdown that occurred in H1 2020.This was driven by Managers’ continuedaccess to significant funding and theirinterest in Information Technology andwider technology enabled opportunitiesthat have been the standout drivers ofdeal volume during this period.The median multiples of EBITDA acrossthe market as analysed during thisDealtracker period was 8.1x which wasan increase since the last Dealtrackerreport of 7.1x and slightly higher than thelong-term historical average of 7.8x. Thiswas partly due to outperformance in theConsumer Discretionary, Healthcare,Materials and Energy sectors.Primary and Secondary Listed MarketsExpected market themesIPO primary issuances experienceda material decline as a result of thepandemic with small volumes reportedfor H1 2020. This was offset to a certaindegree by the significant secondaryissuances that occurred during thatperiod with many corporates focusingon ensuring they had sufficient liquidityto trade through the pandemic period.As with overall activity levels, there hasbeen strong appetite by companies toaccess the IPO markets in the monthspreceding the issuance of this reportwith much of this demand related totechnology enabled opportunities.Whilst predicting market conditionsover the next Dealtracker period isextremely difficult, the current marketthemes around the acceleration ofdeploying technology across all sectorswill continue to drive deal activityand in particular IM activity levels inthe next 18 months. Notwithstandingthis theme, there remains cautionon the trading environment that willoccur once government stimulus ismaterially reduced and the ongoingrisks associated with the inevitablewaves of infection that will occur priorto a vaccine becoming widely available.This may lead to lower deal volumesand asset valuations should these risksremain for an extended period of time.Dealtracker 2020 5

M&A deal volumesOverall deal volumes were consistent with the previous period. However,it was a period of two halves with a high number of deals recorded inthe second half of CY2019 and a material reduction in deals recorded inthe first half of CY2020 caused by the global pandemic.IntroductionM&A deal trendsThis seventh edition of Dealtracker focuses on Australianmergers and acquisitions (M&A), and equity market activityduring the 18 month period to 30 June 2020 (“the period”). Ourprevious Dealtracker (edition six) covered the 18 months to 31December 2018 and edition five covered the 18 months prior.Our analysis shows that the number of M&A deals duringthe 18 months to 30 June 2020 was on par with the previousreported period (18 months to 31 December 2018). Theincreased number of deals in second half of 2019 calendaryear was offset by the pandemic caused decline in the first halfof CY2020.The data in this report was compiled from several sourcesincluding S&P Capital IQ, the Australian Securities Exchange,Mergermarket, IBISWorld, transaction surveys, companyannouncements and other publicly available documents.We consider this consolidated multi-source analysis –supplemented with our own proprietary sources – to providethe most comprehensive insight into recent Australian dealactivity.This survey is limited to going concern business sales, excludingthose with a significant real estate nature and greater than 5m value.The currency referred to throughout the document is inAustralian dollars.6 Dealtracker 2020On a quarterly basis, the fourth quarter of 2019 was a recordfor this publication, with a total of 301 deals occurring duringthe quarter comprising 22% of the total deals for the fullperiod. In comparison, the first and second quarters of thefollowing year (Q1& Q2 CY2020) represented only 13% and12% of total deals within the period.Following the strong level of activity in the second half of CY2019, which comprised 42% of the total deals for the period,deal volumes plummeted below previous period numbers andfell to levels last observed in first half of 2017. The recent declinein activity over Q1 and Q2 CY2020 is aligned with the globaleconomic downturn caused by the COVID worldwide pandemicand its consequences on economic, mobility and accordinglydeal activity.

M&A – Prior comparative Dealtracker periods1,3941,4031,2791,2711,174Dealtracker 7Dealtracker 6Dealtracker 5Dealtracker 4Dealtracker 31,012Dealtracker 21,718Dealtracker 1M&A – Annual 29201520142013M&A – Quarterly & half yearly trends173Q2 2020Q1 2020H1 2020354 deals181301279Q4 2019Q3 2019233227Q4 2019Q1 2019172Q4 2018H1 2019460 dealsH2 2018399 deals227Q3 2018198Q2 2018Q1 2018H1 2018411 deals213302291Q4 2017Q3 2017Q2 2017168Q1 2017184238Q4 2016270205214Q2 2016Q1 2016173Q2 2014151Q2 2013Q1 2013251194Q4 2013Q3 2013H1 2015410 deals221Q4 2014Q3 2014Q1 2014H2 2015389 deals208202Q1 2015203189194H2 2016508 dealsH1 2016419 deals216Q3 2015Q2 2015H2 2017593 dealsH1 2017352 dealsQ3 2016Q4 2015H2 2019580 dealsH2 2014472 dealsH1 2014345 deals243H2 2013446 dealsH1 2013383 dealsDealtracker 2020 7

Sector compositionThe continued movement of the Australian economy from a resourceled economy to a knowledge-based service economy that has beenobserved over these reports has accelerated through this period withthe Information Technology sector showing considerable growth in dealactivity boosted by pandemic market conditions.The composition of M&A deals by sector is driven by a focus oninnovation through adoption of new technological capabilitiesand also continues to exemplify the transition of the Australianeconomy from a resources driven economy to a diversifiedservice based M&A market.A surge in Information Technology deals occurred asestablished trade buyers across sectors become increasinglyinclined toward innovative investment strategies to enhancetheir technological capabilities, protect their businesses inthe new trading environment, whilst seeking to tap into newcustomer markets. Deals in this sector increased over theperiod from 238 to 321 deals which represents 35% growthfrom the preceding 18 month period. This was the largestincrease in relative share for the period. Volumes in this sectorare predicted to remain strong as buyers continue to seekthe expansion of their digital capabilities to serve customerand workforce preferences that have shifted as a result of thepandemic and create operational further efficiencies.Deal flow in the Financials sector also experienced a marginalfall of 8% compared with the previous Dealtracker periodand now comprises 8% of M&A activity during the period,with regulatory uncertainty offset by the continuing trend offinancial institutions simplifying their operating structures andthe continued emergence of Fintech.M&A – Deal composition by 7%103/8%9 /7%78/6%82/6%1068%37/3%15412%13611%29423%The third sector which recorded an increase in the number ofdeals for the period was Consumer Staples, which grew by8% from 92 to 99 deals. The number of deals in other sectorsdeclined on a scale from 3% in Materials sector to 56% inTelecommunications on low volumes.32926%22318%18mths ending31 Dec %13110%Consistent with prior periods, the Industrials sector remainsthe main focus for Australian M&A activity with 30% of totaldeal flow and the numerically the second largest increasein deal volume at 14% growth since the prior Dealtrackerperiod to 31 December 2018. This continued strength can bepartly attributable to the ongoing consolidation in the sectorto increase operational efficiencies and the acquisition ofIntellectual property for deployment in foreign markets.26819%27522%32123%23817%19415%29323%18mths ending31 Jun 2017Telecommunication servicesUtilitiesEnergyHealthcareConsumer staples8 Dealtracker 202018/1%43/ %36523%18mths ending30 Dec 201841730%18mths ending30 Jun 2020MaterialsFinancialsConsumer DiscrentionaryInformation technologyIndustrials

“The hunger for enhancing digital capabilitiesto serve customers and workforce changespost pandemic is driving investment in newtechnologies, whilst the Industrials sector hasremained buoyant as the consolidation trendcontinues.”Dealtracker 2020 9

Corporate M&A has focused onthe trend of consolidation in theIndustrials sector, whilst investmentmanagers have focused onthe Consumer Discretionary,Information Technology andConsumer Staples sectors.Corporate deals by sector (current period)31% Industrials22% Information Technology14% Consumer Discretionary8% Financials8% Materials7% Consumer Staples6% Healthcare2 % Materials1% Utilities1% Telecommunication servicesCorporate deals by sector (prior comparable period)26% Industrials17% Information Technology20% Consumer Discretionary9% Financials8% Materials6% Consumer Staples9% Healthcare3 % Materials1% Utilities1% Telecommunication services10 Dealtracker 2020