M&A Risk in Review 2020-21

Deal Activity in Australia and New Zealand

2021 is showing that deal makers are breaking off the shackles from a turbulent 2020. Deal activity has been increasing rapidly as the Australian economy fires back up, and likewise as the New Zealand economy continues to show strong resilience and recovery.

In the W&I insurance market, we have seen high volumes of insured deal activity occurring across both Australian and New Zealand markets, and on balance a prevalence from sophisticated sellers to instigate a seller-mandated W&I process.  Deal makers have shown they are confident to deal in cross border assets despite border closures while diligence providers are also adapting to diligence in the new virtual environment.

There is clear increased inbound activity as foreign buyers, particularly from the US, seek refuge in Australian and New Zealand assets given pandemic interruptions have, so far, been minimal.  Deal closing periods however have increased in Australia and New Zealand due to FIRB and OIO approvals taking longer.

Given we have also seen a buoyant IPO market this year, deal makers are considering dual track processes with greater frequency.

Sectors

Unsurprisingly, sectors in Australia and New Zealand where deal activity has been high align with our global trends and include Technology, Education, Media, Consumer and Medical & Biotechnology. Continuing in the tech space, we have also seen a number of software deals in wide ranging sectors such as mining, health and consumer goods.

Australia has seen a focus on renewable energy deals with a number of wind and solar farms being of interest to buyers.  We expect activity in this sector to grow as a number of developing assets come to maturity.

Financial services companies have also been a sector of increased deal flow transacting on the back of legislative change in Australia following recommendations from the Royal Commission.  Fintech companies have also been attractive targets currently as the financial services sector gets a shake-up through disruptive players.

Focus Areas of Underwriting

Insurers are currently focused on COVID-19 impacts to Targets, including with regard to any previously obtained COVID-19 related Government subsidies or support. With the recently imposed lockdowns in a number of States in Australia and parts of New Zealand, we expect that their focus will be on understanding trading and impacts to employees, material contracts and suppliers of Targets. As part of this there will be an increased focus on reviewing management accounts and compliance with laws.  As deals are taking longer to complete due to regulatory approvals, insurers remain focused on COVID-19 impacts to the business between signing and completion.

Insurers also remain focused on employee entitlement underpayments and consequently the need for a 5% to 10% sampling exercise of a Target’s employee classification and payments are market standard.  This is borne out of a number of high-profile claims in the employee entitlement area.

Cyber risks continue as a focus for insurers as an increasing number of cyber breaches are reported in the press and insurers see greater claims on their cyber policies.

For further insights into investors’ M&A expectations for the next 12 months, and how and why the suite of available M&A insurance products are being used, read our latest global survey report.