Australian deal activity suffers dramatic drop, lowest level since 2020: Refinitiv

New data paints a grim picture for the nation’s bankers with investment banking fees and advisory fees suffering sharp declines over the past nine months.

Australian corporate deal flow has fallen dramatically over the past nine months, with local investment banking activities down nearly 50 per cent year-on-year, according to new data from Refinitiv, with high interest rates putting a dampener on M&A activities.

Refinitiv’s 2023 investment banking review, published on Thursday, found Australian investment banking activities generated $US1.5bn ($2.3bn) in the nine months since January, a sharp decline of 43 per cent compared to the same time last year. Completed M&A advisory fees totalled $US354m, down some 62 per cent.

Australian M&A activity is at its lowest value since 2020, totalling $US81.3bn for the first nine months of the year, a 27 per cent drop compared to the same period 12 months ago.

Newmont’s proposed takeover of Newcrest Mining for $US19.7bn is the biggest M&A deal with Australian involvement this year so far. Picture: Bloomberg

Meanwhile, equity capital markets (ECM) underwriting fees accounted for 22 per cent of the Australian investment banking fee pool and totalled $US324m, down 16 per cent, while debt capital market (DCM) underwriting fees reached $US501m, down 9 per cent.

According to Refinitiv, the top investment bank fee earner in the year to date was UBS, which took in 7.8 per cent wallet share and $US114m in fees, down 45 per cent. ANZ and Commonwealth Bank placed second and third respectively. Westpac and Barclays rounded out the top five.

The biggest M&A deals to have any Australian involvement for the year to date were Newmont’s proposed takeover of Newcrest Mining for $US19.7bn, Vocus’ mooted buy of TPG’s Vision Network business for $US4.2bn, and Albemarle’s proposed Liontown Resources buy for $US3.9bn, all of which are still pending.

The mooted acquisition of TPG’s Vision Network by Vocus is worth $4.2bn.

Investment fees for deals were down across every sector, with media and entertainment the hardest hit, down 79 per cent year-on-year to $US22m.

Telecoms infrastructure assets remain in strong demand from buyers however. AustralianSuper last year agreed to pay Singtel’s Optus $1.9bn to own 70 per cent of its telecoms towers, while the country’s largest superannuation fund also purchased telco tower owner Axicom from Macquarie.

Leading the M&A league table for Australian-involved deals is Bank of America, followed by JP Morgan and Gresham Partners.

The financial data firm counted at least 16 Australian-issued IPOs priced so far this year raising $US509m, down 10 per cent in proceeds from a year ago.

While the numbers represent grim reading for investment bankers, there’s likely better news on the horizon. As The Australian reported earlier this month, merger and acquisition pipelines are picking up again after an extended rough patch, with several bankers reporting certainty around deals is returning.

“The year started quite busy, and then I’d say the second quarter was much quieter all across the street,” Julian Peck, head of investment banking for Australia and New Zealand at JPMorgan, told The Australian.

“Clients are looking at a range of transactions.

“Mining and energy are obviously active. There are infrastructure transactions that have commenced – airports and some other deals that might come through – and there’s been some activity in other industrials too. It’s always dangerous to say what’s not busy but there hasn’t been a lot of activity in financial institutions this year and technology has been quieter.”

Incitec Pivot has sold its ammonia manufacturing facility in Louisiana to CF Holdings. Picture: Incitec Pivot

While rising interest rates have made it more expensive for companies to borrow money, larger companies are reviewing their growth strategies with a clearer picture, according to Nick Sims, Goldman Sachs Australia’s co-head of investment banking.

“As it’s clearer where base interest rates are, that enables people to price acquisition financing more accurately and bidders to get a better handle on their cost of capital,” he said.

“Among our client base, we are seeing the level of interest pick up. People are reviewing whether or not now is an appropriate time to be selling assets and reviewing their targets.

“And that will flow through to activity in the second half of this year but in particular in 2024, assuming there’s no other macro-economic or geopolitical shock that we are not aware of.”

Additional reporting: Paulina Duran