Investment banking activity in Australia has experienced a significant decline in the first half of 2023, with fees dropping by 50 per cent compared to the same period last year. The decrease in investment banking deals reflects the prevailing economic uncertainties and higher costs of debt.
According to a preliminary half-year report provided by Refinitiv, Australian investment banks generated $US953.1 million in fees during the first half of this year, marking a sharp decline of 50 per cent from the previous corresponding period. Equity capital markets (ECM) underwriting fees accounted for $US192.3 million, or 20 per cent, of the Australian investment banking fee pool.
The ECM activity recorded a 16 per cent decline compared to the first half of last year. Completed mergers and acquisitions advisory fees also saw a substantial decrease, amounting to $US267.1 million, down 62 per cent from a year ago. Syndicated lending fees reached $US187.5 million, reflecting a significant drop of 65 per cent compared to the first half of 2022.
UBS emerged as the leader in Australia’s investment banking fee league tables, generating $US89.9 million in related fees and capturing a 9.4 per cent wallet share during the first half of 2023, according to the preliminary data from Refinitiv.
Announced mergers and acquisitions activity related to Australian firms amounted to $US60.5 billion for the first half of this year, indicating a decline of 24 per cent in value compared to the first half of 2022. This represents the lowest first-half period by value since 2020, when it amounted to $US25.1 billion. However, target Australian mergers and acquisitions experienced a positive trend, reaching $US44.7 billion, up 14 per cent compared to the first half of last year.
On the other hand, domestic mergers and acquisitions fell by 60 per cent from a year ago, totaling $US9.4 billion. Inbound mergers and acquisitions reached a record high of $US35.4 billion, reflecting a significant 120 per cent increase in value from the first half of 2022. However, outbound mergers and acquisitions experienced a substantial decline of 71 per cent compared to the first half of last year, with announced deals amounting to $US10.5 billion.
From a sector perspective, the materials sector accounted for 53.5 per cent of the market share of deal-making activity involving Australia, totaling $US32.4 billion. This marks a more than six-fold increase compared to the first half of last year. Consumer Products and Services captured 9.9 per cent of the market share with $US6.0 billion, followed by Healthcare with 9.1 per cent and High Technology with 6.8 per cent.
JPMorgan led the announced mergers and acquisitions league tables with $US26.6 billion in related deal value, capturing a significant 44 per cent market share based on preliminary data.
In the ECM space, the Australian market witnessed a total of $US7.2 billion raised in the first six months of the year, indicating a 13 per cent increase in proceeds compared to the first half of 2022. Australian-domiciled companies raised $US7.0 billion through follow-on offerings, marking an 18 per cent increase compared to the first half of last year. However, the proceeds from Australian-issued initial public offerings experienced a significant decline of 95 per cent, with only $US26.4 million raised from five IPOs. Additionally, convertible offerings raised $US212.3 million from five primary issuances.
The Australian materials sector accounted for the majority of ECM activity, capturing 39.1 per cent of the market share and generating $US2.8 billion in proceeds. This represents a 12 per cent decrease compared to last year.
Based on preliminary data, Barrenjoey shareholder Barclays led the Australian ECM underwriting with $US1.09 billion in related proceeds, capturing a 15.1 per cent market share during the first half of 2023.
In the debt capital markets (DCM), primary bond offerings from Australia-domiciled issuers raised $US84.5 billion during the first half of 2023, reflecting a 13 per cent decrease in proceeds compared to the same period last year. The Financials sector of Australian companies captured 61 per cent of the market share, raising $US51.4 billion, which marks a 25 per cent decline compared to the first half of 2022.
National Australia Bank took the lead in the Australian bonds underwriting league table, generating $US10.7 billion in related proceeds and capturing a 12.7 per cent market share, according to preliminary data.
The decline in investment banking activity in Australia can be attributed to the higher cost of debt and the challenging economic conditions. Uncertainty about the economy has resulted in a decrease in mergers and acquisitions, as well as a decline in ECM and DCM activities.
However, there are positive signs in certain areas, such as the increase in target Australian mergers and acquisitions and the record-high inbound mergers and acquisitions, indicating potential for growth and resilience in specific sectors.
As the economic landscape and market dynamics continue to evolve, it remains to be seen how investment banking activity in Australia will fare in the second half of 2023. Market participants will closely monitor the situation and adjust their strategies accordingly to navigate the changing environment.