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US interest slows but still dominates offshore activity

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Overseas countries with the largest share of interest in Australian M&A are the United States (18% of total offshore interest), the UK (13%) and Singapore (11%).

However, of those three, only the UK demonstrated growth in Australian M&A activity over the quarter, with a 128% increase. Activity for the US and Singapore was more downcast compared to previous quarters, despite their majority stakes.

The two biggest leaps in offshore interest were in Europe, with Italy (1450% growth) and Spain (790% growth) topping the list. Also showing signs of significant growth this quarter were the United Arab Emirates (620% growth) and Japan (431% growth).

At the opposite end of the list were Malaysia, which saw a 92% decrease in interest, China (61% decrease) and Singapore (41% decrease).

US slowdown not a cause for concern

After seeing significant growth over the last few years – an average 60% increase year-on-year since 2016 – we’re seeing a slowdown in offshore interest from the US.

US involvement in Australian M&A deals decreased by 34% this quarter compared to the previous, with substantial drop-offs occurring in the Consumer and Tech industries.

While US activity over the quarter was subdued, we did see an increase of 42% in US interest YoY from 2017. While this didn’t match their previous average YoY increase, it is a healthy sign that Australia remains a key target for US investment in the face of uncertainty, and there are several supporting factors.

 

Rising US interest rates

According to insights from Morgan Stanley, the recent shift in US interest rates will keep Australian M&A activity thriving.

While the US Federal Reserve has continued to hike rates, Australian benchmark rates ‘have held steady at 1.5%’. Combined with a slight decline in the Australian dollar, this shift will keep foreign investors – the US among them – keen to benefit from the favourable exchange-rate.

Analysts at Morgan Stanley said this ‘helps underpin an attractive cost of capital for potential transactions and may help explain why Australian M&A is holding up better’.

 

Rigid IPO environment

While the US might be the world’s largest economy and the most technologically advanced, this actually works against startups trying to break into the market. Competition is too strong and regulations around raising capital are simply too rigid.

US investors still rely on exchanges in Australia to facilitate startup growth, simply to avoid the risks of litigation and the heavy expenses associated with going public in the US.

 

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