The future of the deal

M&A Leadership Series

Clear views from the top | Issue 2 | February 2019
Clear views
from the top
Methodology
Through the M&A Leadership Series we’re bringing the Heads
of M&A from corporate Australia together with our leading
Deloitte experts into one community.

The information in this survey is compiled from face to

face interviews with business leaders involved in M&A and
insights gathered from global Deloitte research, Deloitte
Access Economics and the views of the leading experts in our
Australian M&A practice.
Contents
Executive summary 1
What’s ahead for 2019 5
Economic outlook 9

Trends for 2019

Corporate venturing 13
Disruptive M&A 15
Divestitures 17
Cross-border M&A 19
Value delivery 21
Analytics 23

Sector perspectives
M&A in financial services 27
M&A in consumer business 28
M&A in the technology sector 29

Contacts 31
 The future of the deal: M&A Leadership Series

Executive
summary
After four consecutive years of crossing This positivity is also manifesting in
the US$3 trillion annual mark, the global the sentiment of leaders of M&A in
M&A market continues to surpass Australia, who are showing increased
expectations1. The winds of change are interest and activity in ‘disruptive M&A’
here – some of the key global trends (acquiring innovation led capabilities
include a rise in shareholder activism, and technologies across key disruptive
the return of private equity and the categories such as Fintech, AI, Robotics,
threat of disruptive innovation – these Cyber Security), corporate venturing
themes are expected to have a major and other types of partnerships. These
impact on M&A markets. and other trends seen in 2018 show that
the nature of what we understand to be
Locally, strong global economic traditional M&A is changing.
conditions are flowing through to the
Australian economy and the market is
also buoyant, with almost all corporate
M&A executives involved in the survey Companies are continuing to look at
expecting domestic deal activity in
Australia to increase or remain stable non-core businesses and their
in 2019. We see this as reflecting the
positive sentiment generally in the
potential divestment.
market. In our fifth CFO Sentiment
survey2 for the first half of 2018, 77%
of CFOs were optimistic about their
prospects and only 4% were pessimistic.
This is reflected in strong local job
growth and investment activity as
businesses feel confident enough to
increase their capacity. Risk appetite
also remained strong, with a record
64% of CFOs comfortable with taking on
more balance sheet risk (up two points
on the previous results of 62% in the
last half year).

1
Deloitte UK. 2018. Future of the Deal. [ONLINE] Available at: https://www2.deloitte.com/uk/en/pages/financial-advisory/articles/future-of-the-deal.html.
[Accessed 17 December 2018].

2
Deloitte Australia. 2018. CFO Sentiment edition 5. [ONLINE] Available at: https://www2.deloitte.com/au/en/pages/about-deloitte/articles/cfo-sentiment-
edition-5.html. [Accessed 17 December 2018].

01
Clear views from the top | Issue 2 | February 2019

02
 85%
of respondents are expecting an increase in private equity
competition/activity in the next 12 months (vs 63% in 2017)
 Clear views from the top | Issue 2 | February 2019

46%
expect domestic deal
activity to increase

25%
of activities considered by respondents involve acquiring
targets which principally operate in overseas markets

62%
consider Asia-Pacific the
most attractive region for
foreign acquisitions

SALE
65%
of corporates have
undertaken or are
considering undertaking
disruptive M&A as part of
70%
of corporates are
their M&A strategy preparing for a divestiture

04
 The future of the deal: M&A Leadership Series

What’s 51% of survey respondents

ahead expect deal activity to be stable
for 2019? in the coming 12 months with
37% expecting it to increase.

Chart 1
Are you expecting the number of deals that your organisation pursues to increase or
decrease over the coming 12 months?

N/A 2%
0%

Little or No change 51%

37%

Decrease 10%
7%

Increase 37%
57%

0% 10% 20% 30% 40% 50% 60%

2018 2017

05
 Clear views from the top | Issue 2 | February 2019

Inorganic growth is expected to remain a strong driver of shareholder value in the current economic climate. 63% say inorganic growth
is a key driver of shareholder value for their organisation.

Respondents stated their growth targets and forecasts are not dependent on the ability to deliver on inorganic growth initiatives.
Inorganic growth opportunities are pursued more opportunistically and in addition to delivering on a strong organic growth agenda.

This was further supported by the findings of Deloitte’s M&A Trends 2019 report 3 that found corporates are focussed on expanding their
customer bases in existing geographic markets or expanding and diversifying their products and services.

Respondents are expecting an increase in private equity competition/activity in the coming twelve months (85%) as compared with
2018 (63%).

Chart 2
Do you anticipate Private Equity competition/activity in your sector in the
coming 12 months?

15%
No
37%

85%
Yes
63%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

2018 2017

3
Deloitte US. 2018. M&A Trends report 2019. [ONLINE] Available at: https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/ma-trends-
report.html. [Accessed 17 December 2018].

06
 The future of the deal: M&A Leadership Series

The vast majority of corporates planning M&A

activity are expecting to acquire or establish
strategic partnerships (> 63%), more than 50%
are considering a divestiture.

Chart 3
Which deals are a priority to your organisation in the next 12 months?
Choose all that apply.

We are not expecting to

We are not 1
complete any M&A over 1
expecting to…
the coming 12 months

Agnostic/
Agnostic/opportunistic 12
12
opportunistic
Partnerships (e.g., joint
Partnerships (e.g.,
ventures, strategic
26
26
joint venture
alliances, s,…
etc.)

Divestitures
Divestitures 23
23

Aquisitions
Acquisitions 32
32

0
0 5
5 10
10 15
15 20
20 25
25 30
30 35
35

07
 Clear views from the top | Issue 2 | February 2019

In summary, some of the key M&A

challenges Heads of M&A in Australia are
expected to face in 2019 are:

Corporate venturing
The growing profile of corporate venturing globally and as part of the Australian
landscape shows that traditional M&A has changed for good. For Australian heads
of M&A, while they are interested, there is no consistent approach yet in the market
how to embed this as part of more traditional M&A and investment strategies.

Disruptive M&A
In Australia, over 65% of respondents have undertaken or are considering
undertaking disruptive M&A as part of their M&A strategy. Most approach the
prospect of disruptive M&A from two angles; to disrupt or as a response
to disruption.

Divestitures
In the Australian market, almost 70% of surveyed M&A leaders confirmed they are
currently preparing for a divestiture with the key motivator being that the asset is
not a core part of the business portfolio and/or as part of a portfolio optimisation.

Cross-border
Cross border activity continues to be a major trend in the Australian market. Over
25% of all M&A activities considered by respondents involve acquiring targets which
are principally operating in overseas markets. Australian corporates are mainly
looking to Singapore. South East Asia and China for investment options. For a
successful deal, the Asia Pacific partner company must see the benefits to their
participation in any deal or partnership too.

Value delivery
M&A values have been rising, driven in part by competition between large acquirers
to buy smaller innovative companies. The more successful acquirers are adopting
a more integrated approach that ensures tight alignment to strategy and earlier
involvement of the integration/separation teams and business units.

08

Economic
outlook
M&A activity is influenced by a
range of macroeconomic factors
including economic growth, financial
conditions and prevailing sentiment.
For all the headlines and political ructions,
the global economy saw a relatively strong
year in 2017-18, with global growth of
3.7%. The IMF forecasts that growth will
remain at this level in 2018-19.
However, downside risks to global growth
have risen in the past six months, while
the potential for upside surprises has
diminished. Those risks stem from
increased barriers to trade, weaker
economic conditions in some emerging
markets and marginally tighter financial
conditions. Nonetheless, despite visible
risks, the bottom-line is that global growth
remains sound and supportive
of M&A activity.
Locally, Australia’s economy continues
to perform strongly, benefitting from its
proximity to the growing Asian region.
This has given rise to strong demand for
mining and agricultural exports as well as
for services exports in terms of tourism
and international education. Marginally
above-trend economic growth has kept
jobs growth solid and business
confidence sound.
09
The future of the deal: M&A Leadership Series
According to the NAB Business Survey,
business confidence remains above the
neutral level, despite some moderation
over 2018. Solid employment gains have
also kept the unemployment rate edging
down. And with inflation gradually rising,
that mix is forecast to see a gradual
recovery in wages. However, as wages
begin to increase, this is expected to
contribute to interest rates rises, putting
pressure on consumption growth.
Further, falls in house prices in 2018 may
lean against consumption growth going
forward as households battle a negative
wealth effect.
Financial conditions are an important
consideration for M&A activity, with
cheaper debt and more available credit
tending to support activity. On that
score, financial conditions remain broadly
accommodative, but have become
marginally less so recently. The US Federal
Reserve continues to lead advanced
economy central banks as it normalises
official interest rates back towards a
neutral level. Long-term bond yields in
advanced economies remain low, but have
generally been trending higher over the
past couple of years.
In Australia, official interest rates have
remained at record lows since August
2016 and recent comments from the
Reserve Bank of Australia suggests the
next move is as likely to be up, as it is to
be down. In either case, our most likely
scenario is that the rates don’t move
until 2020.
In summary, conditions remain
accommodative and supportive for M&A
activity. Growth domestically and overseas
remains solid, financial conditions remain
historically accommodative and sentiment
positive. However, the growth outlook
varies from industry to industry, with
the technology sector forecast to see
outperforming growth in coming years,
while the consumer and financial services
industries are forecast to grow at rates
more similar to the broader economy.
Clear views from the top | Issue 2 | February 2019

10
Trends
for
2019
11
12
 The future of the deal: M&A Leadership Series

Corporate
venturing
Globally, corporate venturing has
emerged as a fundamental part of the
corporate innovation strategy, providing
companies with an important conduit
into the external innovation ecosystem.4
It is no longer the prerogative of just
technology companies as companies
across all sectors ranging from agriculture
to transportation have launched venture
funds, both formally and informally, such
as Westpac’s $150 million Reinventure
venture capital fund and Coca-Cola
Amatil’s AX Ventures.
Beyond financial returns, these
investments provide invaluable access to
new technologies, business models and
talent, all crucial for growth
through innovation.
For Australian Heads of M&A, while they
consider corporate venturing to now be
a core part of their M&A and investment
strategies, our conversations revealed
there is no consistent approach being
taken to corporate venturing, with the
divergence being driven by the nature of
the different businesses and industries.

Chart 4
When considering a disruptive acquisition or corporate venturing partnership,
what are the primary drivers?

Other
Other

N/A - Would
N/A - Would not consider
not consider these
these types types of…
of transactions
Drive cultural change
Drive cultural
(i.e., change (i.e., become
become more more…
agile/innovative)
Less
Less expensive
expensive thanthan developing
developing technology…
technology in-house

Less
Less risk than
thandeveloping
developing technology
technology in-…
in-house

Defensive playplay
Defensive against competitors
against competitors

Increased
Increased cross-sell/up-sell
cross-sell opportunities
/ up-sell opportunities
Access to human capital
Access to(i.e.,
human capital (i.e.,
people/teams, people/teams,…
skills and knowledge)
Increased
Increased speed
speed to bring
to bring an offering
an offering to…
to market

Use of new technology

Use of / intellectual property
new technology/intellectual property

0%
0% 10%
10% 20%
20% 30%
30% 40%
40% 50%
50% 60%
60%

4
Deloitte UK. 2018. Future of the Deal. [ONLINE] Available at: https://www2.deloitte.com/uk/en/pages/financial-advisory/articles/future-of-the-deal.html.
[Accessed 17 December 2018].

13
 Clear views from the top | Issue 2 | February 2019
Deloitte comment
Ashley Miller, Deloitte M&A partner, says
the growing profile of corporate venturing
globally and as part of the Australian
landscape shows that traditional M&A
has changed for good. M&A can no longer
be narrowly defined as full acquisitions
and large deals. Companies instead are
investing in a range of innovative assets,
technologies and business models without
making full acquisitions.
Corporate venturing and disruptive M&A
are being driven by M&A and strategy
Ashley Miller
teams in partnership with operating unit
Partner
leaders. While operating unit management
Deloitte M&A
are naturally best placed to identify
potentially disruptive new technologies
and business models, applying the longer
term strategic and commercial lenses that
the M&A and strategy teams are able to
bring to the investment process typically
provides a much better outcome.
One of the reasons for the popularity of
corporate venturing is that companies
are able to invest in a range of business
models, people and technologies, thereby
securing access should they ultimately
prove successful, but without the cost
and risk associated with a full acquisition.
From a board perspective this portfolio
approach to investing lowers the cost
of investment and perceived risk, and
importantly reduces the strategic risk
of the company being disrupted by
something that it does not have access or
exposure to through such an approach.
For those thinking of trying out corporate
venturing, we advise being very clear
about your objectives – what do you want
to get out of this and how are you willing
to participate and invest?
14
 The future of the deal: M&A Leadership Series

Disruptive
M&A
Globally, companies spent around $634 billion between 2015 and 2017 on disruptive innovation-related M&A deals. In Australia, over
65% of respondents have undertaken or are considering undertaking disruptive M&A as part of their M&A strategy. Disruptive M&A
refers to acquisitions that cause a significant impact to the acquiring company’s business model and/or products/services through
innovative technology and/or processes.

Chart 5
Have you undertaken - or are considering undertaking - “Disruptive M&A” ?

69.23% - YES 30.77% - NO

Appen’s acquisition of Leapforce, Domain’s
acquisition of a stake in Oneflare Pty
Ltd , Virgin Australia’s acquisition of
Torque Solutions and the joint bid by
Commonwealth Bank of Australia (CBA),
Link Administration Holdings Limited and
Morgan Stanley Infrastructure Partners
Inc. to acquire Property Exchange
Australia Limited are a few of the
examples that we’ve seen in the Australian
market. Our analysis indicates that while
technology companies often lead the way,
many other sectors such as consumer
businesses, telecommunications, financial
services and the manufacturing and
services sectors have also become active
deal makers.
Companies are using M&A as a strategic
expedient to capture disruptive
innovation growth opportunities across
key disruptive innovative categories such
as Fintech, AI, Robotics, Cyber Security
and others. Disruptive M&A strategy
effectively aims to help companies grow by
using M&A to:
1. Address disruption in their markets
driven by innovative technology
and processes
2. Use innovative technology and
processes to change their
business model
3. To venture into a new market
enabled by innovative technology
and processes
4. Create a completely different market
enabled by innovative technology
and processes.5
Most Australian respondents consider
disruptive M&A to be a long-term, but
necessary play. If they do not consider it
as part of their growth strategy they feel
they will likely be disrupted by others. This
aligns with motivations within the M&A
sphere globally where in 2017 nearly 60%
of disruptive technology acquisitions were
executed by the non-tech sector.6
For most Australian corporates
undertaking disruptive M&A, revenue
cannibalisation is not a real concern.
Finding the right target is the biggest
challenge (>65%) followed by difficulties in
valuing the target business/assets.
Half of respondents listed getting access
to technology/IP capabilities as the biggest
driver when considering a disruptive
acquisition, followed by increasing speed
to bring offerings to the market (>15%). In
the next five years, Artificial Intelligence is
expected to have the greatest disruptive
impact on respondents’ sector and
business, followed by the Internet-of-
Things and Robotics.

5
Deloitte UK. 2017. Fuelling growth through innovation. [ONLINE] Available at: https://www2.deloitte.com/au/en/pages/finance/articles/au-deloitte-ma-index.
html. [Accessed 17 December 2018].

6
Deloitte UK. 2018. Future of the Deal. [ONLINE] Available at: https://www2.deloitte.com/uk/en/pages/financial-advisory/articles/future-of-the-deal.html.
[Accessed 17 December 2018].

15
 Deloitte comment

Ian Turner, Deloitte M&A partner, sees that most of our clients approach the
prospect of disruptive M&A from two distinct angles; either as a disrupter or
as a response to disruption. We see more examples of the latter as it is often
difficult for large corporates to initiate disruption organically – largely because
it is necessary to diverge from the current business model. To be a true
disruptor, you need to look not only at making your current business channels
more efficient, but at changing the fundamental operating model. Where the
acquisition is a relatively small one, companies are more inclined to acquire
outright rather than enter into a joint venture, using the control they have to
bring in-house. The flip side of this is maintaining the value of what you have
acquired. If a small start-up is absorbed then they can lose the benefit of what
they are trying to acquire e.g. an innovative culture.

Ian Turner
Partner
Deloitte M&A

16
 The future of the deal: M&A Leadership Series

Divestitures
Last year global divestment activity
reached US$472 billion, however, a
Deloitte global survey found that most
companies struggle with clean breaks
and smooth exits.7 Businesses must
plan their break-ups extremely carefully,
with over half finding it challenging to
complete deals in the current uncertain
environment.
In the Australian market, almost 70% of
surveyed M&A leaders confirmed they are
currently preparing for a divestiture.
Over 60% of the respondents indicate
that they assess their existing portfolio for
adequacy of returns on at least an annual
basis; c. 10% is conducting a review on a
quarterly basis. Typically, portfolio reviews
are part of the annual business planning
process, used to confirm if the asset is still
a fit with the overall longer-term corporate
strategy and they are still the
natural owners.

This is relatively consistent with last Chart 6

year where 55% of respondents were Is your firm currently preparing for a divestiture?
committed to divestments in the coming
year. We note that findings from Deloitte’s
M&A Trends 2019, which surveyed 750
companies in the US, indicates that 80% of
respondents plan to sell a business unit, 5
up from 70% in the prior year.

As with last year, the key motivator

for considering a divestment is that
the asset is not a core part of the 21
business portfolio and/or as part of a 14
portfolio optimisation. Other drivers
for a divestiture are a change in market
conditions and/or regulatory environment
or an opportunistic approach from an
interested party.

Yes No We are considering a divestiture but a decision is ye t to be made

7
Deloitte UK. 2018. Future of the Deal. [ONLINE] Available at: https://www2.deloitte.com/uk/en/pages/financial-advisory/articles/future-of-the-deal.html.
[Accessed 17 December 2018].

17
 Deloitte comment
Deloitte M&A partner Jamie Irving sees
this increase in companies considering
divestitures as an extension of the
increased confidence of CFOs/businesses
in terms of their growth agendas. In past
years, companies have been reluctant
to sell off non-core assets, fearful of the
hole left in their earnings. This increased
confidence, potentially coupled with
acknowledgement from the market of
the need to streamline portfolios and
look seriously at acquiring disruptive
capabilities is leading to divestments
Jamie Irving
becoming more attractive and palatable
Partner
for boards and shareholders.
Deloitte M&A
Given there’s still a large proportion
of overseas buyers, there’s still a need
for businesses to be educating those
acquirers on the Australian market, being
very well prepared in the sale process and
really understand approval process for
some of these overseas buyers.
From an analytics perspective, clients
are asking for more and more detailed
data during their diligence processes. The
availability of more granular data means
that sellers have nowhere to hide in terms
of the condition of what they are selling.

Most of our conversations have indicated

that when divesting, Australian corporates
are selling to domestic or international
trade players, not private equity firms,
which is unusual when you consider how
attractive private equity firms find orphan
assets. We attribute this largely to the
size of many of the divestments that have
occurred over the past year.

18
 The future of the deal: M&A Leadership Series

Cross-border
M&A
Cross border activity continues to be a major trend in the Australian M&A market. Over 25% of all M&A activities considered by
respondents involve acquiring targets, the majority of which are operating in overseas markets. Around 40% of respondents
indicate that Asia Pacific is the most attractive region for Australian based corporates to consider foreign acquisitions. Followed
by opportunities in North America and Europe. Corporates with an internal M&A team indicate that they are increasingly
building up capabilities in the overseas geographies they are planning to extend to. This enables them to effectively execute
their growth strategies focusing on target screening, due diligence and post transaction value delivery.

Chart 7
Which geographies do you consider attractive for foreign acquisitions? Check all that apply.

N/A- -Do
N/A Donot
notconsider
consider overseas
overseas acquisitions
acquistions 12
12

South
South America
America 33

Middle
Middle East
East &
& Africa
Africa 33

Europe
Europe 14
14

North
North America
America 18
18

Asia-Pacific
Asia-Pacific 24

0
0 5
5 10
10 15
15 20
20 25
25 30
30

19
 Deloitte comment Australian companies should not rush
into a merger with the first company they
Jiak See Ng, Deloitte head of Financial identify. Corporates with a successful Asia
Advisory services for Asia Pacific, gives Pacific growth strategy often commence
her perspective from the Asian side for engaging with a local partner through
Australian companies looking to invest in a strategic partnership or Joint Venture
the region. prior to moving into a full acquisition.
This allows both partners to work out if
Australian corporates are mainly looking it is a perfect match and if the expected
to Singapore, South East Asia and China synergies are realistic and achievable.
for investment options. The benefit to
the Australian firms, in terms of access
to markets, is usually clear. However,
in order to successfully deliver on the
deal promise, the Asia Pacific partner
Jiak See  Ng
company must see the benefits to their
Financial Advisory Leader
participation in any deal or
Asia Pacific
partnership too.

These benefits can include providing

access to more advanced technology,
IP, specific management experience and
expertise, sourcing opportunities and
efficiencies. Furthermore, Australian
companies need to consider at an early
stage of the transaction lifecycle what
the non-negotiables and risks they are
ready to accept, before the deal itself is
well underway and significant investments
have been made. Typically, successful
corporates expanding into Asia Pacific
look beyond the traditional areas of due
diligence to validate value expectations
and confirm understanding of associated
risks, considering the end-to-end supply
chain as part of their assessment scope
(e.g., covering ethical and cultural
considerations).

20
 The future of the deal: M&A Leadership Series

Value
delivery
M&A values have been rising, driven In addition, tech-focused deals are often relatively small compared to the corporate
in part by competition between large acquirer. While the effort required to complete and execute the deal may be higher than
acquirers to buy smaller innovative a more straightforward ‘bolt-on’ or adjacency play, the deal value is often much lower.
companies. A global Deloitte survey
found that over 40% of deals focus These factors call for a disciplined, lean and strategic approach to the deal cycle when
on acquiring technology assets, new pursuing disruptive tech-deals. The more successful acquirers are adopting a more
talent or a new digital capability. These integrated approach that ensures tight alignment to strategy and earlier involvement of
technology and capability focused deals the integration/separation teams and business units.
often have far-reaching consequences
for corporate buyers in how they pursue This acquisition of capability or technology creates some challenges for capturing the
and execute the deal. value of the transaction. Partnering with Business Units is considered core to effectively
execute transactions according to c. 78% of respondents. IT and HR are the most
Technology-focused deals tend to be important functional areas being considered, followed by Finance.
more disruptive, that is they require
a substantial change to the acquirer’s
business model for the value to be
captured. Cultural integration is often Chart 8
critical to these deals, but the cultures What are key factors that affect your ability to successfully execute deals?
of vendor and acquirer can be very
different. There can be a tricky balance
Other (detail) 32%
to maintain the innovative mind-set of 13%
an acquired tech-firm, while leveraging
their capability and technology across Due diligence outcomes 34%
33%
the acquirer’s business. Common
traps include overestimating the Valuation and pricing 76%
60%
size and speed of top-line synergies,
underestimating the size of dis- 15%
Funding
7%
synergies and over paying for a hotly
contested target. 85%
Strategic fit
77%

Econ. conditions 20%

10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

2018 2017

21
 Deloitte comment No one approach is more successful – the
approach should be carefully tailored to
Deloitte M&A partner Derek Barker is the strategy, business model, culture and
finding there is an increased interest and legacy issues of the combined entity.
focus on the people side of integrations Often we use analytics to understand
specifically the approach to cultural what’s happening pre-deal but they
integration when larger corporates can also be very useful for post deal
acquire smaller businesses/start-ups with integration to value what will be most
very different cultures. The questions is useful in terms of making integration work.
how to approach cultural integration? Do
you integrate at all? Our advice for successfully integrating
smaller more agile companies into bigger
Large companies in particular are ones without losing the unique culture:
struggling to make this shift, possibly • Customise the integration approach
because it’s because people tend to
Derek  Barker • Behave like a business partner
underestimate both the complexity and
Partner • Develop a retention plan that goes
effort to make post-merger integration
Deloitte M&A beyond financial aspects
work, even if it’s a small disruptive
acquisition. • Deploy an integrated
communication plan
Where the acquisition is a relatively small • Create nimble (IT) solutions 8
one, companies are more inclined to
acquire outright rather than enter into
a joint venture, which tend to have a
higher risk profile. The flip side of this is
maintaining the value of what you have
acquired. If a small start-up is absorbed
then the company loses the benefit of
that they are trying to acquire e.g. an
innovative culture. But the incubator
model, of keeping the new acquisition
largely separate, means that the
acquisition may have little to no impact on
the wider direction of the business.

8
Deloitte M&A Institute. 2012. Growth through Merger and Acquisitions. [ONLINE] Available at: https://www2.deloitte.com/global/en/pages/mergers-and-
acquisitions/articles/growth-through-merger-and-acquisitions.html. [Accessed 17 December 2018].

22
 The future of the deal: M&A Leadership Series

Analytics
The use of data analytics in M&A has primarily been utilised in the pre-deal process around strategy and target screening. More
recently, corporates have started to implement the use of analytics during the execution and due diligence phases of a transaction to
assess and validate investment thesis based on data made available by the seller via digital data rooms. As with last year, the use of
analytics is still early stage – M&A teams are still working out how to embed them into their processes and leverage insights from their
portfolio of M&A processes on an on-going basis. The use of analytics in sell-side transactions is least progressed with around 10% of
corporates using data analytics in divestitures.

Chart 9
Where do you seek to embed analytics capabilities in the M&A lifecycle?

30% 25% 28% 25%

20%
20% 14% 14% 14% 14%
11% 13% 14%
8%
10%

0%
Strategy Due Diligence Transaction Integration Divestiture Synergy
Development Execution validation

2018 2017

23
 Deloitte comment
Deloitte M&A partner Kurtis Heppner
sees that further opportunities exist to
leverage data analytics across the M&A
lifecycle from early stage to validation
and delivery of anticipated deal value. As
the market becomes more mature and
aware of the potential, corporates will
expect that traditional advisors in an M&A
process will do more with same amount
of time. The only way to achieve a deeper
level of insights is by leveraging analytics
and other enabling technologies, such
as natural language processing, to better
Kurtis Hepner
interrogate the data and information
Partner
provided to bidders in transaction
Deloitte M&A
processes.
There remains a misconception that
sellers would withhold data from buyers
or are unwilling to provide detailed level
of information as part of a sale process. In
our experience, we do not find this to be
the case. While at early stages of a deal,
detailed information may be withheld
from all bidders as a transaction proceeds
to binding offers or final bidders. We quite
often see sellers sharing detailed, but
anonymised data and information that
provides backing and support for high
level information released at the start of
the process. Quite often both sides of a
deal are willing to share information to
drive an outcome and provide buyers
the deeper level of certainty around
the underlying information supporting
deal valuation – access to data is being
expected and access is being made
available.
24
 Sector
perspectives

25
26

M&A in
financial services
Growth in the financial sector has
benefitted from low interest rates and an
associated increase in lending activity,
particularly for housing. Recently, global
funding costs have started to edge higher.
In addition, lending standards have been
tightened amid continued tighter macro-
prudential regulation combined with the
increased scrutiny on the industry in light
of the Hayne Royal Commission. Those
factors mean that while near-term growth
may be sound, it may be weaker than it
has been in recent years.
Kevin Chamberlain, Deloitte M&A partner
with a focus on financial services (FS), says
that as the reverberations from the Royal
Commission continue to be felt across
the financial services sector, it stands to
reason that deal activity across the sector
has not been the main focus this year.
Financial services institutions have
focussed their attention on strengthening
customer relationships, conduct and
remediation from past customer dealings,
and thinking about the post Banking Royal
Commission operating environment.
Deals that were in the pipeline prior to the
Royal Commission are mostly proceeding
but there is also a continuing trend on
divestitures as banks narrow their focus to
their core business strengths such as SME,
personal and business lending and retail
mortgages.
27
The future of the deal: M&A Leadership Series
In relation to corporate venturing, many of
the large banks and insurance companies
have their own venture capital arms with
up to $50m worth of seed capital. In this
respect, the financial services industry
is following the major M&A trends
by investing in or acquiring potential
disrupters, in the Fintech and Insurtech
space, either to learn from them or to
prevent them from disrupting business
models.
There has also been a lot of private equity
activity at the larger end of the market
with acquisitions in the non-bank lending
space. Other PE firms are also looking at
niche financial service products where
there are good growth opportunities and
potential for profitable outcomes.
On the area of data analytics for deals,
financial services is a heavily data rich
environment, particularly around loan
portfolios and insurance policy data. Good
use of analytics can show the business
opportunities available and draw the
conclusions much more quickly than
manual excel sheet analysis and are easier
to update in real time. Companies in the
sector are receptive to the opportunities
and relatively advanced in leveraging data
analytics.
M&A in
consumer business
Australia’s consumer industry is in a
state of flux: consumer spend is buoyed
by strong population and employment
growth, but impacted by slow wage
growth, over levered households and
fears of continued falling house prices in
major cities. Domestic retailers have to
contend with these factors, as well as poor
retail trading conditions driven by higher
rents, lower in-store foot traffic and the
continued growth in online and
offshore purchases.
Despite this, consumer sentiment has
remained resilient, staying above the
neutral level at the end of 2018. Deloitte
Access Economics’ latest retail forecasts
indicate real retail growth of 2.6% in 2018-
19 and 2.9% growth in 2019-20, with food
retailing a standout compared to apparel
and other retailing.
Deloitte M&A partner for the consumer
sector in Australia, Victoria Brilliant, agrees
that overall deal activity is strong across
the sector, but buyers are particular about
where and how to invest in Australia’s
consumer market. The strength of
Australian and New Zealand food brands
and our ‘clean and green’ credentials
support the role of Australia as ‘Asia’s
Delicatessen’. Our proximity to Asia and
the consumption upgrade by increasingly
wealthy Chinese consumers is driving
strong investment interest from off shore
buyers – both from Asia and broader.
Asian investors are buying leading brands
in certain product categories that have
enormous appeal in the Chinese and
SEA markets – for example, fresh protein,
infant and adult nutrition. The Daigou
trade has shown us that the export play
is more attractive to Asian buyers than
investing in the relatively small Australian
consumer base. North American and
European players, however, are taking a
different approach: divesting non-core
assets to refine their portfolios and
acquiring or partnering with new brands
to gain exposure to new categories
(e.g. coconut yoghurt, personalised RTE
meals) or challenger brands (e.g. Remedy
Kombucha, MADE Group).
The outlook for consumer M&A is exciting
as domestic and global strategic and
consumer-focused financial sponsors
compete for emerging brands that hold a
particular affinity for Australian, SEA and
Chinese consumers. But all this interest
comes with its challenges: Chinese
buyers have struggled with the demands
of offshore sale processes. Issues with
getting funds out of the country, opaque
and slow decision making and regulatory
hurdles are allowing South East Asian and
Japanese buyers to compete for quality
assets as demonstrated by Hong Leong’s
acquisition of Manuka Health.
28

M&A in
the technology sector
The technology industry has enjoyed
robust growth in recent years, benefitting
from the inexorable rise of the digital
economy. Deloitte Access Economics’
latest Australia’s Digital Pulse report found
that only half (49%) of all Information
and Communications Technology (ICT)
workers in Australia are directly employed
in ICT-related industries such as computer
system design, telecommunication
services and internet service provision.
The remaining 51% of ICT workers are
employed in other industries throughout
the Australian economy. Deloitte M&A
partner Kat McMaster sees the spread
of employment as mirroring what we
are seeing as industries converge, often
with technology driving the change. For
example fintech and healthtech are now
sizeable sectors in their own right and
more broadly, technology is the facilitator
of new business models across all
industries.
We see the technology sector as being
similar to the wider market in that M&A,
and particularly disruptive M&A, is a key
plank of both inorganic growth strategies
and strategies to tackle disruption.
However, even though the sector is
following a broadly similar path, there are
certain characteristics of these companies
that make the journey different and easier
in some ways.
9
Deloitte Access Economics. 2017. Australia’s Digital Pulse. [ONLINE] Available at: http://www2.deloitte.com/au/en/pages/economics/articles/australias-digital-
pulse.html. [Accessed 17 December 2018].
29
The future of the deal: M&A Leadership Series
The rapid growth of the tech industry and
high levels of confidence places them in
a comfortable position to consolidate,
expand and access key technologies and
talent through M&A.
Tech companies are more likely to take a
gamble on acquiring or investing in new
technologies or challengers, and used
to taking fast, agile decisions to respond
to the market. They are less timid when
it comes to disruptive M&A because
disruption is a much more normal
prospect for their sector, compared to
more traditional sectors and players.
While acquisitions are commons,
divestitures are much less so, and most
tech leaders would consider them to be
something of the old world. If an area is
underperforming in a tech company, the
solution is much more likely to be to pivot,
or adapt, or failing that, just let it die on
the vine, rather than engage in divesting.
Corporate Australia has learnt from
the tech acquisitions of the past and
these days we typically see acquisitions
remaining separate from their core
business, working on the outside and
focused on their specific task, in an
effort to preserve an innovative and agile
culture.
 The future of the deal: M&A Leadership Series

Contacts
For more information or any questions on this publication,
Deloitte’s M&A services or the M&A Leadership Series contact:

Tony Garrett Jamie Irving

Partner Partner
Deloitte M&A Deloitte M&A
+61 419 773 365 +61 400 331 266
tgarrett@deloitte.com.au jirving@deloitte.com.au

Ian Turner Kat McMaster

Partner Partner
Deloitte M&A Deloitte M&A
+61 410 045 633 + 61 414 437 554
iaturner@deloitte.com.au kmcmaster@deloitte.com.au

Victoria Brilliant Ashley Miller

Partner Partner
Deloitte M&A Deloitte M&A
+61 407 520 184 +61 417 596 459
vbrilliant@deloitte.com.au asmiller@deloitte.com.au

Thanks to many colleagues for their contribution to this edition, including: Jiak See Ng, Kevin Chamberlain, Kristian Kolding,
Kurtis Heppner, Derek Barker, Peita Calvert, Louise Kelly, Julie Preston, Eva Thieviasingham.

31
 Clear views from the top | Issue 2 | February 2019

Nicki Ivory
Partner
Deloitte M&A
+61 422 024 597
nivory@deloitte.com.au

Wouter Timmer
Partner
Deloitte M&A
+61 406 602 110
wotimmer@deloitte.com.au

Rob McConnel
Partner
Deloitte M&A
+61 439 470 037
robmcconnel@deloitte.com.au

32
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