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Australia & New Zealand Private Capital Market and M&A Overview

Australian private capital funds have become attractive investment targets for overseas investors in the last decades. Whereas only 18% of overseas funds were invested in the country two decades ago, 49% of these funds were in 2017. This reflects the country’s stable political and governance systems, strong economy, and robust financial markets. Looking at data breakdowns for overseas investors, North American funds have become the country's largest cohort of foreign investment, at 48% of overall foreign funds in the past five years. Numerous recent investments show that global investors are looking to continue to take advantage of the country’s strong market capabilities.

Despite Australia’s strict COVID containment policies in the last couple years, its private capital market has continued to grow during the pandemic. It reached a record AUM of AUD$90.0bn in June 2021, which represents an 11% increase from AUD$81.3Bn in December 2020. Breaking down the private capital market into its component spaces, we see echoes of the same story. For example, private equity buyouts reached AUD$20.1bn in 2021, 32% up from its 2020 same. Venture capital reached a high of AUD$7.9bn in 2021, almost double its 2020 total of AUD$3.9Bn. However, the pace itself of aggregate capital growth has slowed in the last year, with private capital funds raising AUD$9.1bn in 2021—10% lower than in the previous year. Interesting to note is also that net IRR for Australia is one of the highest globally. It stood at a 19.6% median in 2021, lower than only Asia, which compares at 37.7%. Historic numbers are also quite high, with the country measuring in at a median net IRR of 17.8% between 2012-2019.

Globally present inflationary pressures have also touched Australia, with the country reaching 3.5% YoY in Q4 2021, outpacing the Central Bank’s target of 2-3%. However, this number is still tame compared to the 6.7% seen in the United States in the same period. This is driving investors to allocate funds increasingly to alternative investments and active strategies.

Projected GDP growth in Australia is set to reach 4.2% this year as a result of pent-up consumer demand from COVID as well as higher commodities exports as a result of the Ukraine conflict. However, rising prices and geopolitical uncertainties have put downward pressures on M&A activities in the Australia and New Zealand regions. This has been observed across geographic markets, however, and is not a cause for concern at this time. Based on the number of potential companies up for sale in the months ahead, greatest Australian and New Zealand deal activity should be expected in the TMT sector, followed by Energy, Mining, & Utilities.

Holistically, the Australian economy has continued to recover at a solid pace. Global concerns, including inflationary pressures and geopolitical uncertainty, remain issues to look out for. However, Australia’s pent-up consumer demand and commodities boom is set to put the country on solid footing for the year ahead.