Challenging year in investment banking: 2023 in review and prospects for 2024

Company News

by Peter Milios

It has been a challenging year for investment banking in 2023, marked by a decrease in deal volume and several high-profile transactions failing to materialise. According to data from LSEG Data & Analytics, the total value of announced transactions in Australia for the year 2023 amounted to $US103 billion, a significant drop from the $US142 billion recorded in 2022.

As the industry took a breather over the summer, dealmakers are now looking forward to a more promising 2024. In this article, we delve into the key developments across various sectors and what can be expected in the year ahead.

Mining

In the mining sector, Albemarle's withdrawal from a $6.6 billion buyout of lithium producer Liontown Resources and challenges faced by SQM in its attempted acquisition of Azure Minerals set a cautious tone. The fate of the $US10 billion Allkem lithium chemicals merger with US-based Livent remains uncertain. However, the gold mining sector saw significant activity, with Newmont's $29 billion acquisition of Newcrest at the beginning of the year being the highlight. Other noteworthy deals included Genesis Minerals' purchase of St Barbara assets, Evolution Mining's acquisition of the Northparkes copper and gold project, and BHP's $6 billion sale of its coal assets to Whitehaven.

Mining companies, especially in the lithium and gold sectors, are expected to continue attracting attention in 2024, with De Grey Mining, Ramelius Resources, Pilbara Minerals, and Patriot Battery Metals poised for potential corporate activity.

Energy

The energy sector remained in the spotlight throughout 2023, primarily due to ongoing talks between Santos and Woodside over an $80 billion-plus merger. The outcome of these negotiations, along with regulatory approval, will be closely monitored in 2024. Another point of interest is whether Brookfield and EIG will revive their pursuit of Origin Energy after their $16 billion buyout proposal was voted down.

The energy transition remains a significant theme in M&A, with funds allocated to this space expected to drive further industry consolidation, particularly among smaller oil and gas players in Australia. Notable deals in 2023 included APA's purchase of Alinta Energy's West Australian business, Enel's sale of energy assets to Inpex, and ConocoPhillips acquiring an additional 2.49 per cent interest in APLNG.

Consumer and Retail

The consumer industry saw robust M&A activity in 2023, with buyers targeting listed companies such as Costa, United Malt, Blackmores, and SILK Laser. Japanese brand operator Seven & I Holdings purchased 7-11 for $1.7 billion, while Wesfarmers acquired SILK Laser for approximately $180 million in equity. L'Oreal's acquisition of the Aesop skincare business for $3.7 billion was a standout transaction.

Private equity also played a significant role, with deals including Pizza Hut, Australian Venue Co, and VetPartners. Looking ahead, private equity firms are expected to divest consumer businesses in their portfolios, including Quadrant's Rite Bite Group and KKR's Arnott's, Greencross, Journey Beyond, and Superior Food Services. Mexican restaurant chain Guzman y Gomez is anticipated to be a sought-after target for US private equity.

Health

Healthcare providers faced challenges in 2023, as higher costs impacted performance. Despite this, healthcare remained attractive to private equity investors. Notable transactions included Ramsay Healthcare's sale of its half-share of Ramsay Sime Darby and Bain Capital's acquisition of aged care operator Estia.
Private equity firms are monitoring Australian listed healthcare companies, ready to seize opportunities when valuations decline. The sector's challenge lies in reducing costs and developing sustainable business models with reduced reliance on government support. Aged care consolidation is expected to be a prominent theme in the coming year.

Technology and Media

Media consolidation continued in 2023, with ARN Media's bid for radio rival Southern Cross Media. In technology, Telstra's acquisition of tech consultancy Versent and WiseTech Global's acquisitions of Envase Technologies and Blume Global were noteworthy. Tech companies grapple with defining their business models and economics in newer industries. Profitability remains a key concern, and unprofitable tech stocks may struggle to secure funding.

Large technology companies face interest from smaller players but may need to consider price adjustments. Smaller deals included Symbio's tie-up with Aussie Broadband and Soprano Design's efforts to buy Whispir.

Financial Services

Deals in the financial services and banking sectors were relatively thin in 2023. ANZ's potential acquisition of Suncorp awaits regulatory approval, which could trigger further consolidation involving Bendigo and Adelaide Bank, Bank of Queensland, or Judo.

Perpetual is likely to proceed with the sale of its corporate trust arm, while Link, Iress, and PEXA remain potential buyout targets. Financial services consolidation, especially in "buy now, pay later" areas, is deemed necessary, and the top four banks may explore bolt-on deals to diversify their earnings.

Industrials

Industrial and consumer companies faced challenges in 2023, including higher costs and slowing demand. The focus in both sectors will be on cost reduction, price adjustments, and potential job cuts. Companies are expected to adapt to a weaker economic period by aligning with market expectations on pricing.

Key deals included BGC's sale of its fibre cement unit, Downer's sale of its recycling unit, TPG Capital's acquisition of InvoCare, and bus company Kelsian's purchase of All Abroad America. Raphael Geminder is poised to privatize Pact, and Incitec Pivot's sale of its Waggaman facility to CF Industries was one of the largest deals in the space.

Infrastructure

Several infrastructure deals were carried over into 2024, with a focus on selling stakes in toll roads and airports. Data centres are anticipated to remain an attractive area for investment, with AirTrunk as a potential target for Blackstone. Assets related to the energy transition are also expected to draw interest from investors.

Real Estate

Real estate bankers are optimistic about increased activity in 2024, with the potential for mergers between major office landlords such as GPT and Lendlease. Asset value adjustments to meet market conditions could lead to equity raising by some real estate groups. Despite expectations of increased activity, 2023 saw fewer deals than anticipated, despite a favourable exchange rate and a recent market upswing.

In conclusion, while 2023 posed challenges for investment banking, 2024 holds promise for a resurgence in M&A activity across various sectors. Industry players will need to adapt to changing market dynamics and regulatory considerations as they navigate the opportunities and challenges of the year ahead.

Peter Milios

Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.

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