2024 outlook: Navigating growth in Australia’s investment market

After a surge in mergers and acquisitions (M&A) activity starting from the pandemic, dealmaking dramatically slowed in late 2022.

This scenario has become familiar. In 2023, the market experienced unprecedented dislocation, driven by cautious lending practices and aggressive interest rate cycles. Transaction volumes and funds raised across the board, from large-cap deals to venture capital investments, saw significant declines.

With the challenging operating environment appearing to be in the past, the question arises: Will 2024 mark a turning point for dealmaking, or will it be a false dawn?

 

A mountain of “dry powder”

Private equity firms around the world entered 2024 with record levels of capital available to deploy, totalling US$2.59 trillion at the end of last year, according to S&P Global Market Intelligence. Even within Australia, unallocated private equity capital has more than tripled between 2016 to 2023, according to McKinsey.

Eventually, this dry powder is expected to ignite. Private equity firms are recyclers of capital, not mere storers. There comes a point when deals must start flowing again. The pressure to initiate deals will only increase as limited partners look for quicker returns to meet their own need for liquidity.

A mid-market resurgence

Against this backdrop, 2024 could be a tipping point. The early signs are promising, albeit tempered by strategic caution, especially in the mid-market segment.

Recently, ION Analytics highlighted significant interest from global dealmakers in expanding their investments in Australia’s mid-market. This segment’s appeal lies in its often more stable growth than early-stage businesses, while benefiting from innovations at the forefront of new technologies and renewable energy.

As the momentum in the market continues to accelerate, it is anticipated that both businesses and equity firms will increase their appetite for investment.

However, not all will be the same. There has been a notable shift toward more discreet, bilateral negotiations over broad, competitive auctions, as businesses seek to gauge investors interest before launching into a formal process.

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The strategic shift towards growth capital in 2024

There is growing optimism about a potential tipping point for the M&A market, especially in the mid-market segment. Dialogue and activity levels are picking up, reminiscent of the buoyant atmosphere seen in 2021. While private equity remains a significant player in an environment rich with unspent capital, the spotlight now shifts to growth capital as a vital catalyst for value creation and returns in 2024. 

The essence of growth capital’s success extends beyond financial leverage.  

It is deeply rooted in an empathetic, hands-on approach in guiding scale-up businesses to reach their growth potential. Whether that be through M&A, strengthening governance, streamlining operations, supporting expansion into new business areas or geographies, or assembling top-tier talent, especially at the executive and board level. Businesses can strategically position themselves during these transformative periods by tapping into the unique benefits growth capital has to offer.  

Given the increasing focus on mid-market investments, substantial unallocated funds and the emerging strategic shift towards growth capital by SMEs themselves, 2024 is set to be a turning point for dealmaking.

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The Australian Business Growth Fund (ABGF) is an active provider of patient, minority growth capital for Australian businesses with over $2 million in revenue and a proven business model.

It only takes a conversation to understand if your business is ready for growth capital with ABGF.