Since 2022, we have seen fewer (ASX) IPO’s in Australia, with only $1.1bn of IPO capital raised from 32 listings in 2023. The prior five year average was $5.4bn from 120 listings.
Popular opinion is that 2024 will see increased M&A activity, due to a big backlog of assets that must trade and an increasing appetite for AI technology. Corporate owners and private equity portfolio (PE) companies did not sell in 2023 because of valuation decreases and now there are numerous PE’s that need to come to market.
The technology sector is expected to see the highest growth in M&A activity in 2024. AI has become the hottest topic in tech, with 54% of PE looking at AI. This is supported with a 24% increase in the S&P 500 on the back of technology and AI driven stocks.
In February ’24 Herbert Smith Freehills mused: “As bidders adjust to greater certainty on interest rates, private equity and private capital continue to deploy significant amounts of funds, and consolidation takes place in a number of sectors, we expect Australian M&A deal value and volume to remain at high levels.”
And McKinsey & Company are bullish on the M&A market, stating: “A variety of factors supports M&A market’s durability. First, with the business landscape experiencing seismic shifts – ranging from the rise of AI to the growing importance of sustainability and the emergence of a more demanding, tech-enabled consumer class – CEO’s across industries tell us that M&A is a more vital strategic lever than ever. Organic growth – which never compared with the most effective M&A strategy – pales further when significant strategic shifts are called for. This is especially true when companies need to adapt quickly.”
M&A is obviously an excellent strategic tool for growth, breaking into emerging markets, acquiring key personnel, divesting of non-strategic assets or liquidating capital, but at what risk?
What questions should be asked, when assessing risks around M&A?
Do you know who you’re dealing with?
Do you fully understand the technology or business that your acquiring?
Is the acquirer requiring funds remain in escrow? Do you want all funds released, so that you can move forward with your plans?
Are financier’s looking for additional security?
Are you sure of the tax position of the vendor?
These are all appropriate questions, and cannot always be answered by the due diligence process.
So, what is the answer? Part of the answer is Warranty & Indemnity (W&I) Insurance, or Transactional Insurance.
We outline the detail of W&I insurance here : https://4sightrisk.com.au/business-risk/warranty-indemnity-ma-transaction-risk-insurance/.
4Sight Risk Partners have also undertaken a number of insurance and (pure) risk due diligence for clients; as part of the M&A consulting team. We work with lawyers, financiers and deal advisers on developing risk profiles & frameworks for both vendors and acquirers.
For more information on the benefits of Warranty and Indemnity Insurance (Merger and Acquisition Insurance) please read our 4Sight Risk Partners article ‘What are the benefits of Merger and Acquisition Insurance?‘.
Free Report Download
The Merger & Aquisition industry is broad. For those in the ‘Portfolio Investment Management Service – On a Commission or Fee Basis’ area of this industry you may find valuable this year’s Insurance Risk Report, which includes a Hazard Index Rating and Class of Insurance Risk Summary.