Chapter 2 of Gilbert + Tobin’s 2022 Takeovers and Schemes Review (below) explores which sectors made the greatest contribution to public mergers and acquisitions in Australia in 2021.

In summary:

• Retail + consumer services led the way in terms of aggregate transaction value (31%, with approximately 32 times the aggregate transaction value in the sector compared with the previous year).
• Energy + resources was the dominant sector by number of deals (14 deals).
• The professional services, retail + consumer services and financials sectors also saw strong public M&A activity by transaction volume.
• Transport + logistics and utilities stood out as key contributors to aggregate transaction value.

Contribution of energy + resources sector to public mergers and acquisitions

The energy + resources sector was the strongest performing sector in 2020 by both number of transactions and aggregate transaction value.

In 2021, energy + resources was again the dominant sector by number of deals, accounting for 14 transactions (an equivalent number to 2020).

However, while the aggregate investment in the energy + resources sector increased from $11.4 billion in 2020 to $14.8 billion in 2021, the sector only ranked fourth by aggregate transaction value, contributing to 11% of total deal value (down from 37% in 2020). Despite the increased interest in energy + resources in 2021, it was eclipsed by the significant number of $1 billion plus transactions in other sectors and indeed by the sheer volume of transactions this year.

Four of the 14 deals in the energy + resources sector were valued over $1 billion. Significant transactions in the sector included:

• Santos’ successful $8.1 billion merger with Oil Search; and
• Orocobre’s successful $1.8 billion acquisition of Galaxy Resources.

Interestingly, many of these larger transactions were driven by energy transition. Oil Search / Santos was a consolidation of (fossil fuel) gas companies, whereas Galaxy Resources / Orocobre was a new energy and metals transactions (lithium is used in batteries for, among other things, electric vehicles).

Metals & mining was the standout sub-sector, with 10 out of the 14 energy + resources transactions involving targets in this industry.

Transactions in energy & resources and other significant sectors

Other key sectors

Professional services was the second largest contributor to deal activity in 2021, with nine deals occurring in the sector. Three of these deals involved competing bids for Mainstream (a specialist third party administrator for the financial services industry) as the target – click here to read more about Mainstream. This was followed by both the financials sector and retail + consumer sector at eight deals each.

In 2021, the retail + consumer services sector was the strongest performing sector by aggregate transaction value, accounting for 31% of total value. However, 98% of the value in this sector was attributable to the market leading $39 billion Afterpay / Block, Inc transaction.

Transportation + logistics came in second by deal value (18%, with an aggregate transaction value of $23.8 billion). The sector’s meteoric rise from zero deals in 2020 to the second most valuable sector in 2021 was driven by the $23.6 billion Sydney Airport transaction, which accounted for 99% of the value in this sector. The utilities sector came in third (16%, with an aggregate deal value of $20.3 billion), powered by the $10.2 billion AusNet Services / Brookfield transaction. The aggregate transaction value in the food, beverage + tobacco sector, which ranked second by deal value last year, fell from 30% in 2020 to only 0.4% in 2021. The high transaction value in 2020 was attributable to one transaction, being Coca-Cola European Partners’ $9.8 billion acquisition of Coca-Cola Amatil.

The proportion of aggregate transaction value for the healthcare sector fell from 4% in 2020 to 2% in 2021. Despite this, the number of deals in the sector increased from one deal in 2020 to six deals in 2021. COVID-19 undoubtedly had a significant impact on the sector, with hospitals and health systems feeling the brunt, counterintuitively, of diminished patient volumes and revenues, and increased labour and supply costs. We consider the reduced healthcare public M&A is a function of our data set, which focuses on takeovers and schemes, as there were a range of private M&A deals in the healthcare sector. We expect general interest in this sector to remain given the COVID-19 pandemic, advances in healthcare and an ageing population.

Transactions per sector (number v value) 

Sectors of interest for foreign bidders

In 2020, there was significant foreign interest in energy + resources and professional services. The sectors of greatest interest to foreign bidders in 2021 were professional services (six deals, up from three deals in 2020), retail + consumer services (four deals) and healthcare (three deals).

Key sectors for foreign bidders 

In terms of value, the retail + consumer services sector represented 61% of the total value of foreign bids, mainly attributable to Block, Inc’s $39 billion acquisition of Afterpay. This was followed by utilities with 28% of foreign bids by aggregate transaction value, with three out of four deals in the sector involving foreign bidders.

What can we expect in 2022?

• As inflationary pressures continue to build, businesses in highly leveraged sectors which are disproportionately affected by any actual or anticipated increase in interest rates may become targets for opportunistic transactions by long-term buyers.
• The effects of the COVID-19 pandemic will continue to be felt. Given this and the general ageing of the population and a renewed focus on health, we expect to see more mergers and acquisitions in the health, aged care and pharmaceutical related sectors.
• The transition to “net zero” will continue to result in greater investment in renewable energy and cause significant disruption to energy + resources companies dependent on fossil fuels, potentially leading to greater M&A activity in these sectors.
• Infrastructure assets will remain attractive as growing superannuation / pension funds’ hunger for long term stable cash flows continues.