03 December 2021
As the economy emerged from the initial impact of COVID-19 and the sharpest decline in activity since the Great Depression, the market looked towards a recovery. While a bounce-back was expected, resilience transformed into a record-breaking year with strong momentum going into 2022.
In M&A globally, 2021 saw the strongest opening months on record1 with a number of factors combining to create conditions conducive to a boom. The year saw a resurgence of cross-border business and consumer confidence as a result of increased vaccination rates, and corporates and investors transitioning to a ‘living with COVID’ mindset. This shift in mentality manifested a ‘bigger is better’ trend, with unprecedented levels of dry powder looking to be deployed and an increased number of consortiums to facilitate high value ‘mega deals’. M&A was also well supported by capital markets more broadly, with ample liquidity in debt markets for Australian corporates and sponsors, supported by the current low interest rate environment, and strong equity market performance, including a significant year for companies going public.
Looking to 2022, the emerging COVID variant Omicron has caused uncertainty to increase again. It is likely that the renewed uncertainty will keep central banks in dovish mode for a while longer, despite the increasing inflationary concerns. Activity-wise, we expect M&A to remain strong, supported by ongoing availability of cheap capital; an increase in corporate appetite for growth and diversification; a move to offensive strategic activity in digitisation and decarbonisation; and ESG commitments now at the forefront of corporate, investor and public interest.
"With over half of the ASX100 committing to net zero emissions, but a consistent reporting framework yet to be developed, there is a huge opportunity for Australian corporates to lead their sectors in how they approach ESG disclosures and interim targets."
Co-Head of Equity Capital Markets, Macquarie Capital
Australia and New Zealand
Last year, we expected that acceleration or disruption of long-term structural trends like urbanisation, resilience, digitisation and the energy transition would be the main catalysts for market activity in 20212.
The aggressive pace of digital transformation continued in 2021, with most sectors recognising the need to close the digital divide. In education, while the rapid transformation to online learning put a spotlight on a severe lack of existing digital infrastructure in the sector, it also renewed focus on equitable learning opportunities for all and alleviated the longstanding headwinds in EdTech. Australia and New Zealand’s EdTech market is now poised for growth, with 68 per cent of EdTech companies already selling overseas and 97 per cent planning to do so.3
Chart 1: ‘Online Education in Australia - Market Research Report’, IBIS World, 13 May 2021.
“We’ve seen mass migration to the online learning environment across the entire lifecycle – from children in school to employees in their workplace.”
Global Head of Software and Services and Co-Head of Macquarie Capital,
Alongside EdTech, other sub-sectors are also gathering momentum across the region. AgTech is emerging, with predictions it will become a $A100 billion industry by 20304; Australian FinTech is entering the global stage with deal interest and capital raisings increasing in size; and digital infrastructure is being propelled by demand for data centres and fibre networks. More broadly, digitisation shows no signs of slowing down and will continue to disrupt and transform traditionally under-digitised sectors, like healthcare, risk and compliance, resources and manufacturing.
"There has never been a better time to be a technology entrepreneur in Australia and New Zealand, with countless locally-born companies succeeding on a global stage, raising significant growth capital and attracting the lure of the world’s largest strategic buyers and private equity."
Head of Technology, Macquarie Capital
Australia and New Zealand
This year has seen a societal consensus on the need to act on climate change and reduce emissions - highlighted on a global stage at the COP26 conference this year. This public demand and bottom-up pressure from the broader investor community has helped accelerate Australia’s green transition, with the expectation that all ASX100 corporates will soon commit to net zero. Those that do will likely find it easier to attract investment capital, with ~$A27 billion of dry powder5 looking to be deployed in green infrastructure and sustainable assets; and to facilitate large-scale M&A in support of the energy transition.
“2021 has been the year of announcements and 2022 will be a year of action. The focus will be on implementation and demonstrating to investors how sustainability targets will be achieved.”
Co-Head of Macquarie Capital
Australia and New Zealand
While the finance sector and corporate Australia will continue to lead the way in the energy transition, technology is also playing a key role, with emerging opportunities in:
Energy storage: representing an expected >$A1 trillion opportunity6 for the technology industry to create large-scale energy storage solutions
Transport: expecting an increase in EV demand by 18 per cent p.a. over the next 10 years,7 with significant investments in charging infrastructure required to support this
Battery minerals: experiencing an acceleration in the sector, ignited by the increasing EV demand – with graphite, lithium and cobalt as the main “winners” (albeit off low bases).8
Chart 2: ‘Lithium Economics Through the Value Chain’, CRU Consulting, 31 March 2020.
In Australia, it’s clear that the sentiment around the pandemic can shift quickly. Both the emerging COVID variant and the upcoming federal election provide potential causes for uncertainty in 2022. However, there are signs that the economy has transitioned to ‘living with COVID’. GDP and employment have returned to pre-COVID levels and Australia now enjoys the title of a world vaccination leader. This, on top of a record-breaking year, growing consumer, corporate and investor confidence, and proliferating opportunities in digital transformation, ESG and the energy transition, indicates that momentum will continue into 2022 and beyond.