ANALYSIS: International M&A Slowed in Q1; Australia Bucked Trend

We are in a continuing slowdown in overall M&A deal activity, and the first-quarter totals for international deals show that the trajectory for cross-border M&A has been no different.

With a total Q1 deal volume of $142 billion, cross-border M&A activity fell to its lowest level since Q2 2020, and its second-lowest level in more than a decade. That tracks with overall M&A activity, which fell to $568 billion in Q1, the third-lowest global quarterly M&A deal volume over the same time period.

Cross-border M&A also saw a noticeable drop in market share of total M&A deal volume, from the previous quarter’s 44% to 36% in Q1.

Typically, acquirers who avoid international deals cite various risks to their businesses, including political instability and differences in culture and talent. Add in Q1’s mini-banking crisis and lingering concerns from the previous year’s Russia-Ukraine war, inflation, and energy supply issues, and it seems that there may be added risks that acquirers may consider.

Australian Targets a Bright Spot in Gloomy Q1

The top five target countries for cross-border dealmakers in Q1 were the US, Australia, UK, Canada, and France. While being traditional favorites among acquirers worldwide, almost all of the top target countries still saw a fall in deal volume from previous quarters.

Australia, however, stood out among the top target countries. Since Q4 2021, deals involving an Australian target have risen to the highest volume since Q4 2021, despite the widespread gloom in cross-border activity.

Driving the Q1 rise in Australia’s deal volume was one of the two international mega deals announced in the quarter: The $12 billion acquisition of Sydney-based Origin Energy by EIG Global Energy Partners, based in the US. The transaction is expected to be completed by the end of 2024.

With Q2 already underway, cross-border deals involving an Australian target seem unlikely to stop anytime soon. For example, US gold giant Newmont Corp.’s proposal to acquire Melbourne’s Crest Mining Ltd. for over $19 billion could lead to be the largest gold mining takeover ever, if completed.

Cross-Border Deals Targeting Tech Surged Amid Layoffs

The top target industries for cross-border M&A in Q1 were the financial and technology sectors, but they moved in different directions in the quarter.

Deals involving an international target in the financial industry maintained the highest deal volume among all sectors. However, the high-profile bank collapses in the latter end of the quarter seem to have had the same dampening effect on the sector’s cross-border deal volume that the pandemic did in Q2 2020: Both unusual quarters ended with the sector at about the same $25 billion deal volume.

First quarters have proven to be relatively slower than other quarters due to fatigue from a flurry of Q4 deals. But even compared to previous Q1s, cross-border financial-sector deal activity in 2023 was sluggish. Deals involving a financial target were down by 72% from Q1 2022, 62% from Q1 2021, and 59% from Q1 2020. (The fall from Q4 2022 was 39%.) There were no mega deals in this sector in the first quarter.

Meanwhile, tech-sector M&A deals involving an overseas target actually rose in Q1. At $24 billion, deal volume shot up from Q4 2022 by 159%. Compared to previous Q1s, cross-border deals involving a tech target were down by 8% from Q1 2022 and 35% from Q1 2021, but were up by 33% from Q1 2020.

The sole cross-border tech mega deal announced in Q1 was an acquisition, by a consortium led by the Canada Pension Plan Investment Board, of Qualtrics International Inc. in the US for over $10B. The transaction is expected to be completed at the end of the year.

For a tech sector that was plagued with layoffs in Q1, a rise in deals sends a mixed message about the health of the industry. Mergers and acquisitions are historically likely to lead to layoffs. On the other hand, this could be positive news for the industry, as the tech space is known to obtain higher digital proficiency through M&A.

Notable international M&A developments so far in Q2 suggest that tech will remain on track as a top target area. To mention a few, the sale of Finland’s Angry Birds creator, Rovio Entertainment, to Japan’s Sega Sammy Holdings Inc. was announced on April 17. Saudi Arabia’s Savvy Gaming Group also announced its acquisition of US based Scopely Inc. on April 5. Both transactions are currently pending.

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