2014-2020 – Trends in venture capital and M&A activity in Australia

By in Opinion

In early 2020 William Buck will release its updated venture capital (VC) and mergers and acquisitions (M&A) reports, which will look at mid-market activity trends over the last six years as well as VC activity over the last 11 years. In the lead-up to the release, here are some of the preliminary key take outs from the research.

VC trends

Size of investment deals is increasing
While VC activity globally has been under some recent pressure, there has been solid interest locally.
2018 was a bumper time for VC investment activity in Australia seeing over $3.1b invested in the sector – the highest on record. This is more than double than 2017’s investment figures of $1.4b.

In 2018, VCs investment was in fewer deals but larger deal sizes. Although the number of deals fell 12% from 2017 to 2018, the average deal size has grown substantially up to A$20m in 2018 from A$8m in 2017.

This trend continued in the first half of 2019 with average deal sizes increasing by 66% to $14.5m, compared to an average deal size of $8.7m for the six months to June 2018.

Expected rates of return vary greatly between VC investor groups
Investors have been entering the market with widely-differing expectations of their desired rate of return. William Buck has found those expected rates can vary from 3% to more than 50%, depending on the style of investor and the stage at which they get involved with a business.

For the venture capital sector, the expectation is they will receive between 28% and 45% – investing early in new businesses to generate the most substantial returns (if those companies then go to flourish).

VC investment characteristics
As indicated above, most VC investments are seen in seed, startup or early stage businesses with investments tending to be worth between $1-$4m. And while the industry exposure of VC investment is diverse, globally the lead industries are healthcare and biotechnology (39%), followed by information technology (32%).

In terms of exit strategy, VC investors are more likely to sell their investment to another public company, followed by selling to a private company or an IPO.

M&A trends

Local buyers continue to dominate the mid-market M&A activity
William Buck’s research has found domestic buyers have claimed about 70% of the total number of mid-market deals in the past five years, however they make up about 30% of the value of mid-market deals.

Higher value M&A deals continue to increase
The M&A market is broadly split into three categories: the small deal segment, where the deal valuation is less than $10m; mid-market deals between $10m and $250m; and large transactions above $250m.

Deals valued under $10m declined slightly in the first half of 2019, however mid and large value transactions both increased.

High quality businesses are a focus for overseas investors with the US leading foreign M&A investment
Foreign buyers are seeking higher quality businesses and have easier access to cheaper credit. Of the M&A deals completed in the mid-market space in the 2019 financial year by foreign investors, by far the major share came from the US, accounting for $1.4b of deals signed.

Singapore was the next largest contributor to M&A activity, with $589m in investment.

Other countries in the top five were the UK with $418m, China with $184m and Hong Kong with a total investment of $61m.

M&A transaction value trends
Over the last six years, the average transaction size in the mid-market for foreign buyers has fluctuated but ultimately increased from $68m to $70m. Mid-market local buyer transactions steadily increased from $51m in 2014 to $61m across the same period.

Real estate has been a key sector for buyers, particularly from China, Singapore and Hong Kong. In 2018 real estate accounted for over half of the value of transactions, followed by consumer discretionary and industrials sectors. To June 2019, real estate still accounted for the majority, but dropped to 43%, again followed by consumer discretionary and industrials.

The first half of 2019 also saw some industries undergo substantial growth in the number of deals and their value. Trucking, coal and consumable fuels, pharmaceuticals, oil and gas exploration and production were some of the industries to post strong gains, along with restaurants, asset management and custody banks and packaged foods and meat.

0 Comments

Leave a reply

Your email address will not be published. Required fields are marked *

*

Do NOT follow this link or you will be banned from the site!