Mid-Market M&A Resilience: Australia’s Dominant Dealmakers

Australia's mid-market, with enterprise values of $10 million to $500 million, shows resilience in M&A despite global economic uncertainties.

Despite global economic uncertainties, Australia’s mid-market continues to show remarkable resilience in mergers and acquisitions (M&A) transactions. Mid-market companies—typically defined as those with enterprise values between $10 million and $500 million—have proven to be a vital part of Australia’s M&A landscape. This resilience has been driven by a combination of strong sector-specific growth, evolving investor sentiment, and the increasing sophistication of corporate strategy and advisory services. For CFOs, executives, and corporate advisors, understanding the dynamics of this market is critical to capitalizing on opportunities and navigating challenges in 2022 and beyond.

Why the Mid-Market Continues to Thrive

The mid-market sector in Australia has demonstrated sustained activity in M&A, particularly in sectors like technology, healthcare, energy, and consumer goods. Despite broader global uncertainties such as inflation, supply chain disruptions, and geopolitical tensions, the mid-market remains a highly attractive target for both local and international investors. Several key factors have contributed to the resilience of this market:

Strong Financial Performance: Many mid-market businesses in Australia have shown strong financial performance, particularly those that have diversified their revenue streams and adapted to changing market conditions. As a result, these companies continue to attract both private equity firms and corporate acquirers looking for growth potential in an uncertain economic climate.
Fragmented Markets and Consolidation: In many industries, the Australian mid-market is fragmented, with numerous smaller players offering opportunities for consolidation. This makes mid-market businesses appealing acquisition targets for larger players seeking to scale operations or enter new markets. Consolidation often leads to improved efficiencies, cost reductions, and enhanced competitive positioning.
Strategic Shifts Post-Pandemic: The COVID-19 pandemic accelerated digital transformation and changed business priorities. Many mid-market companies are now seeking acquisitions to bolster their technology capabilities, expand their geographic footprint, or diversify their product and service offerings. As businesses continue to adjust to new consumer behavior and market conditions, M&A provides an effective way to achieve these strategic objectives.

Key Sectors Driving Mid-Market M&A in Australia

Technology and Digital Innovation: The Australian technology sector has seen robust M&A activity in the mid-market, driven by the increased demand for digital transformation. Companies looking to enhance their e-commerce platforms, data analytics capabilities, and cybersecurity infrastructure have been particularly active in making acquisitions. Investors, including venture capital and private equity firms, are keen on tech businesses that show growth potential in cloud computing, artificial intelligence, and software development.
Healthcare and Life Sciences: With the growing demand for healthcare services, biotechnology, and pharmaceuticals, mid-market companies in the healthcare and life sciences sectors have remained attractive to acquirers. M&A activity has been spurred by the need for companies to strengthen their R&D capabilities or gain access to new markets, particularly in the post-pandemic era, where demand for telehealth and health tech solutions has surged.
Energy and Sustainability: Mid-market companies in the energy and renewables sector have experienced strong M&A interest, particularly from companies looking to expand their renewable energy portfolios or enhance sustainability credentials. Australian companies are increasingly focusing on solar, wind, and battery storage projects, and M&A has become a primary route to achieve growth in this sector.
Consumer Goods and Retail: The consumer goods and retail sectors have undergone substantial transformations, especially as businesses adapt to changing consumer preferences in the wake of COVID-19. Mid-market businesses in these sectors, particularly those with strong e-commerce platforms or sustainable product lines, continue to see M&A activity as both local and international acquirers look for businesses that can capitalize on evolving consumer trends.

Strategic Implications for CFOs and Corporate Advisors

For CFOs and corporate advisors, the resilience of the mid-market presents both opportunities and challenges in terms of corporate strategy, financial management, and deal execution.

Strategic Acquisitions and Growth: Mid-market companies looking to grow through M&A must carefully consider their strategic objectives. CFOs will need to assess whether an acquisition will provide access to new markets, enhance operational efficiency, or offer technological innovation. As these companies often have more flexibility and agility than large enterprises, they can act quickly to make deals that align with their long-term goals.
Valuation Adjustments and Risk Management: The mid-market’s resilience is not without its challenges. CFOs must be aware of the potential risks in valuation, especially considering the broader macroeconomic environment. Rising interest rates, inflationary pressures, and supply chain issues may affect how buyers and sellers approach valuations. Mid-market businesses must be prepared to navigate these changes and work closely with advisors to manage risk, optimize deal structures, and ensure value preservation.
Financing and Capital Structure: Many mid-market companies rely on a combination of debt and equity financing to fund acquisitions. As global interest rates rise, CFOs may face higher borrowing costs, making it more difficult to finance deals through debt. In this environment, CFOs may need to explore alternative financing options, such as private credit or equity investments, to secure capital for acquisitions. Additionally, ensuring the right capital structure post-acquisition will be crucial to maintaining financial health.
Post-Merger Integration: For corporate advisors, successful post-merger integration is critical to realizing the potential of a deal. This includes aligning corporate cultures, integrating financial systems, and realizing synergies. CFOs will play an integral role in overseeing the integration process, ensuring that financial and operational strategies are aligned to deliver on the promises made during the deal-making phase.

Advisory Services in Mid-Market M&A

Advisory services have been instrumental in facilitating mid-market M&A activity in Australia. Corporate advisors are playing an increasingly important role in guiding mid-market businesses through the complexities of the transaction process. These services range from deal sourcing and due diligence to post-merger integration and strategic planning. For CFOs, partnering with an experienced advisory firm can help ensure that transactions are structured effectively, risks are mitigated, and synergies are fully realized.

Corporate advisors are also providing value-added services, such as identifying strategic acquisition targets, assisting with valuation assessments, and advising on tax and legal considerations. Additionally, with the increasing focus on ESG (Environmental, Social, and Governance) criteria, advisory firms are helping businesses incorporate these considerations into their M&A strategies, ensuring alignment with investor expectations.

The Future Outlook for Mid-Market M&A

The outlook for mid-market M&A in Australia remains positive, with strong fundamentals underpinning continued activity. As businesses seek to innovate, expand, and diversify, the mid-market will continue to be a fertile ground for M&A transactions. CFOs and corporate advisors will play a key role in ensuring that companies are positioned to capitalize on opportunities while managing the challenges posed by the broader economic environment.

In the coming years, mid-market M&A is expected to be driven by ongoing digital transformation, sustainability initiatives, and cross-border investments. As companies become more agile and strategic in their approach to growth, mid-market M&A will remain a cornerstone of corporate development in Australia.

Australia’s mid-market continues to show resilience in the face of global economic uncertainties. For CFOs and corporate advisors, this creates both opportunities and challenges in terms of strategic acquisitions, deal structuring, and post-merger integration. With the right guidance, mid-market companies can leverage M&A as a powerful tool for growth, innovation, and market expansion.

If you would like to review your strategies for 2023, book a complimentary consultation with DGMS Group.

KPMG Australia. (2022). Resilience in the Mid-Market: Driving M&A in Uncertain Times. www.kpmg.com.au
PwC Australia. (2022). Mid-Market M&A Trends: Key Drivers and Challenges for CFOs. www.pwc.com.au
Deloitte Australia. (2022). Navigating the Mid-Market M&A Landscape in Australia. www.deloitte.com.au
Australian Financial Review. (2022). Mid-Market M&A in Australia: The Key to Unlocking Growth. www.afr.com