PwC Australia forecasts pick up in M&A activity in 2024 as interest rate outlook lifts spirits

A growing number of Australia’s bosses are set to pull the trigger on mergers and acquisitions as the prospect of falling interest rates provides confidence for deals and financing.

A growing number of top chief executives are ready to acquire or merge with other companies as the prospect of falling interest rates provides more confidence for pricing deals and financing, according to PwC Australia.

The professional services firm says private equity groups will be under pressure to deploy a record $37bn in capital, resulting in higher deal volumes from private capital investors in 2024.

The past few weeks have seen a pick-up in M&A activity, including a proposed $9bn buyout of the Altium by Japan’s Renesas Electronics, and PwC expects further capital recycling, public-to-private deals and foreign investment, plus an increased volume of private capital investment, given the staggering levels of dry powder available.

It follows a slowdown in mergers and acquisitions in 2023 driven by aggressive increase in interest rates, inflationary pressures and a subsequent economic slowdown.

PwC Australia infrastructure and deals partner Clara Cutajar the expectation of interest rate reductions gave companies a stable platform to work on offers.

The IPO of Virgin Australia could give confidence to other businesses to list on the ASX. Picture: Brendan Radke

“The outlook for interest rates gives people more confidence in the willingness to transact and what the capital structure looks like,” she said. “Now that we are comfortable with rates that creates a more stable environment for deals.” The four big banks in Australia have forecast that the Reserve Bank will cut interest rates as soon as August this year, which could see the cash rate fall from 4.35 per cent to 3.85 per cent by December.

Ms Cutajar said the recent spate of M&A activity would also help to build confidence.

“The big deals already announced this year, not just in Australia but also globally, is something that markets like. It helps to get people more comfortable and thinking that now is maybe the time to take the step,” she said.

Research from PwC in its M&A Outlook for 2024 showed 59 per cent of top Australian CEOs are planning to execute a deal in the next three years, and more than a third are planning to make three or more acquisitions in the next three years.

PwC partner Clara Cutajar.

The IPO market is set to remain pretty sluggish in 2024, with few big listings. Virgin Australia has explored an IPO in the past year, but given the current climate, Ms Cutajar expects no big names are likely to test the market for the foreseeable future, given little chatter in recent months.

“We’ve had little IPO activity of late because in the post-Covid era there was an extraordinary amount of IPOs,” she said.

“Some of them potentially weren’t the best … businesses to list and had little success, which has kept people away.

“Virgin’s been talked about as being the first one that might come to market, and a company like that is likely to give everyone confidence if they opted to go ahead.”

Activity in 2023 was somewhat buoyed by inbound interest. The biggest deals involved buyers from the US, Europe and Japan. Together they announced six of the 10 largest transactions in 2023.

PwC expects continued interest from investors from nations such as the US, Japan and South Korea this year, particularly in mining and resources, technology and consumer goods.

Ms Cutajar said that Australia was an attractive destination for foreign investors because of the strong economy, stability and confidence in the government and regulatory framework.

“We’re seeing a lot of interest from Japan in particular at the moment,” she said.

“Our economy has had a few blips, but we have been doing pretty well as a country economically,” she added.