M&A Activity in 2022: Trends and Insights for CFOs

Post-pandemic recovery, global uncertainties, and evolving investor expectations, making it essential for CFOs to navigate opportunities and challenges in deal-making and valuation.

Mergers and acquisitions (M&A) activity in Australia experienced significant shifts in 2022 as businesses navigated an evolving economic landscape shaped by the post-pandemic recovery, global uncertainties, and changing investor expectations. For CFOs, this environment presented both opportunities and challenges in terms of deal-making, valuation adjustments, and strategic decision-making. Understanding the latest trends in M&A is crucial for CFOs who must guide their companies through the complex and often volatile world of corporate transactions.

Sector-Specific Trends in M&A

While M&A activity remained strong across Australia in 2022, different sectors exhibited distinct trends:

Technology and Digital Transformation: The technology sector continued to be a major driver of M&A activity, with many companies seeking to bolster their digital capabilities, enhance cybersecurity measures, or expand into new technologies such as AI and cloud computing. This was especially prevalent in industries that had been disrupted by the pandemic, like retail, where businesses sought digital transformation through acquisitions of e-commerce platforms, data analytics firms, and software solutions.
Healthcare and Life Sciences: The healthcare sector saw significant M&A activity in 2022, driven by the ongoing demand for healthcare services, pharmaceuticals, and medical technologies. Companies in this space sought to enhance their portfolios and expand their reach, particularly through strategic partnerships and acquisitions of businesses focused on vaccines, biotechnology, and telehealth services.
Financial Services and FinTech: Another key sector for M&A was financial services, particularly the burgeoning fintech space. Traditional banks and financial institutions sought to acquire innovative fintech startups to diversify their offerings and meet the increasing demand for digital banking services, payments, and lending solutions. This trend was also amplified by consumer demand for more seamless, online financial services.
Energy and Renewables: With Australia’s commitment to sustainability and net-zero emissions, there was a noticeable uptick in M&A activity in the energy sector, particularly within renewable energy. Companies sought to acquire renewable energy assets, technologies, and infrastructure to future-proof their businesses and meet both regulatory demands and consumer expectations for sustainable practices.

Valuation Adjustments and Deal Structuring

One of the most significant aspects of M&A activity in 2022 was the continued adjustment of valuations, largely influenced by broader economic factors such as inflation, interest rates, and global supply chain disruptions. The market was more volatile than in previous years, leading to fluctuating asset prices and shifting investor sentiment. For CFOs, this made accurate valuation assessments and deal structuring more important than ever.

Valuation Multiples: In 2022, valuation multiples in many sectors were under pressure. The growth prospects of many businesses, particularly those in tech and healthcare, were evaluated against the backdrop of increasing interest rates, which affected the cost of capital and future growth expectations. Companies had to adjust their expectations and apply more conservative multiples when evaluating potential acquisitions.
Risk Premiums and Deal Terms: Given the volatile environment, more risk premiums were built into deals. Buyers demanded more stringent terms, such as earn-outs and contingency clauses, to mitigate the risks associated with uncertain economic conditions. CFOs played a critical role in ensuring that their companies' risk exposure was carefully assessed and managed throughout the transaction process.
Cross-Border M&A: Australia remained an attractive market for foreign investors, particularly in sectors such as resources, technology, and healthcare. Cross-border deals were more prevalent in 2022, with CFOs needing to navigate complex regulatory and tax environments, as well as potential geopolitical risks associated with foreign investment.

Strategic Considerations for CFOs in M&A

In a year marked by economic uncertainty, CFOs needed to be agile in their approach to M&A transactions. Key strategic considerations for CFOs included:

Integration Planning: Integration remains one of the most critical factors for the success of an M&A deal. CFOs had to ensure that post-merger integration plans were developed early and executed with precision. This included aligning financial systems, harmonizing company cultures, and streamlining operations to achieve the anticipated synergies from the acquisition.
Due Diligence: Conducting thorough due diligence was vital in the context of an uncertain market. CFOs and their teams needed to go beyond financial audits and examine non-financial factors, such as operational resilience, supply chain stability, and long-term market positioning. ESG (Environmental, Social, and Governance) factors also became more important, as investors increasingly demand that companies demonstrate commitment to sustainable practices and ethical governance.
Leveraging Debt and Financing Strategies: With interest rates on the rise, CFOs had to carefully consider their financing options for M&A deals. Debt financing became more expensive, and CFOs had to work with their finance teams to structure deals that minimized financial strain. Equity-based deals or hybrid structures were also more frequently explored, especially for businesses in high-growth sectors like technology.
Talent Retention and Organizational Change: Acquisitions often lead to significant changes in the organizational structure, and managing talent retention was a top priority for CFOs. Ensuring that key employees remained with the company post-acquisition was vital for maintaining continuity and achieving the deal’s intended synergies. CFOs also needed to be mindful of potential changes to employee compensation structures, benefits, and incentives to retain top talent.

Outlook for M&A in 2023

Looking ahead, M&A activity in Australia is expected to remain robust, although the market may see more caution from both buyers and sellers. CFOs will likely need to focus on driving organic growth through strategic acquisitions, as well as leveraging technology and data to enhance operational efficiencies. The sectors likely to see continued M&A activity include healthcare, technology, energy, and financial services, with businesses looking for opportunities to innovate, scale, and remain competitive in an increasingly digital and sustainable economy.

As businesses look towards 2023, CFOs will need to refine their M&A strategies, balancing short-term challenges with long-term growth objectives. The ability to identify undervalued assets, negotiate favorable terms, and execute seamless integrations will remain key to successful deal-making.

The M&A landscape in 2022 was shaped by a combination of economic uncertainty, sector-specific opportunities, and evolving market dynamics. For CFOs, the ability to navigate these complexities while ensuring strategic alignment, accurate valuations, and strong post-merger integration will be crucial for success. As the Australian economy continues to recover and adapt to changing conditions, M&A will remain a key driver of business growth and transformation.

If you would like to review your strategies for 2022, book a complimentary consultation with DGMS Group.

KPMG Australia. (2022). M&A Activity in Australia: Trends and Strategic Insights. www.kpmg.com.au
PwC Australia. (2022). The Australian M&A Landscape: Key Trends for CFOs. www.pwc.com.au
Australian Financial Review. (2022). M&A in Australia: What CFOs Need to Know in 2022. www.afr.com
Deloitte Australia. (2022). Navigating M&A in Uncertain Times: A Guide for CFOs. www.deloitte.com.au