The prospects of mid-market merger and acquisition activity in the defence and government sectors in the next 12 months have dwindled, according to a new report released by national accounting association Pitcher Partners.
The Dealmakers Mid-Market M&A in Australia 1H20 update from Pitcher Partners, produced in conjunction with Mergermarket, has found a drastic decline in enthusiasm for defence sector deals with not one operator believing there would be an increase in the near term, and figures for the government services sector only slightly more favourable.
The news comes as a striking change from an earlier (annual) report released before the outbreak in February, in which 43 per cent of respondents tipped an increase in defence deals.
The collapse in sentiment comes on the back of changes to the Foreign Investment Review Board framework, which set to zero the threshold for FIRB review from late March, and the proposed new changes that are due to start from January 2021.
Under the revamped FIRB conditions, the federal government will be able to impose conditions or block investment by a foreign person on national security grounds regardless of the value of investment and introduce mandatory notification of any proposed investment by a foreign person in a “sensitive national security” business.
Pitcher Partners corporate finance partner Michael Sonego said confidence in completing mid-market deals had been sapped in many sectors during the first half of 2020 but it had vanished completely in the defence sector.
“We had anticipated the regulatory changes could have a chilling impact on business investment in areas like defence and government services but the fall in confidence for these sectors is still remarkable,” he said.
“Other areas where there has been a sharp decline are government services and energy, mining and utilities. Each were thought to offer opportunities for deals by about a third of the respondents in the last survey, but that confidence has disappeared. Only 3 per cent of respondents think either of those sectors will grow.”