Australia Sees 400 Billion Dollars in Failed Deals, Highest in 15 Years

This year, Australia has witnessed a significant setback in its acquisition landscape, with nearly 400 billion dollars in large-scale deals collapsing, marking the highest failure rate in 15 years. The primary factors contributing to this trend include regulatory risks, valuation disagreements, and the increasing challenges posed by a tightening regulatory environment.

A consortium led by the Abu Dhabi National Oil Company (ADNOC) recently abandoned its 18.7 billion dollar offer to acquire Santos, Australia's second-largest natural gas producer. This decision was driven by disagreements over potential capital gains tax liabilities related to one of Santos' assets. The failure of this transaction has raised doubts about the feasibility of large-scale deals in Australia, pushing the total value of failed acquisitions in the country this year to its highest level since 2010.

Consultants have highlighted that acquisitions in Australia must undergo multiple rounds of review by various government agencies, including the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board. This lengthy approval process increases the difficulty of completing transactions in the country. The managing director of a boutique consulting firm stated that while the public stock market remains at historic highs and financing is readily available, multiple factors have led to a deterioration in the acquisition environment. These factors include the impact of technological changes on multiple industries and new regulations implemented by the ACCC starting January 1, 2025, which require most transactions to obtain regulatory approval before proceeding.

The managing director noted that regulatory overreach, particularly from the ACCC, has created a maze of uncertainty. The mandatory review process implemented by the ACCC has added substantial burdens to acquisition activities. Under the old rules, companies could voluntarily seek approval from the ACCC to reduce the risk of intervention and enforcement actions by the commission against transactions it deemed anti-competitive. The ACCC spokesperson stated that the new mechanism aims to strike a balance between identifying and preventing anti-competitive acquisitions while allowing transactions that are less likely to raise competition issues to proceed clearly. However, consultants believe that the regulatory process and the time required to finalize large transactions have increased, raising the risk of transaction failures.

A partner at a law firm pointed out that time kills transactions, whether they are private equity acquisitions or public market acquisitions. The weakening of momentum is a current trend in the acquisition environment. The partner added that valuation gaps still exist. Although financing is readily available, transactions must be reasonable. Acquirers and boards of directors will conduct more thorough considerations, more detailed reviews, and be more cautious before taking action.

In August, Peabody Energy abandoned its 3.8 billion dollar offer to acquire Anglo American's coal assets in Queensland. In early 2025, Brookfield and Bain Capital also withdrew their 2.5 billion dollar acquisition offer for Insignia Financial, an Australian financial services group that had signed a 2.2 billion dollar acquisition agreement with a New York-based company in July. The head of the mergers and acquisitions practice at a law firm noted that some acquirers considering complex transactions are trying to preemptively avoid potential regulatory issues from the Foreign Investment Review Board, the ACCC, or tax authorities. This results in more challenging issues being discussed and addressed before the formal signing of acquisition documents, leading to increased pressure and tension beyond normal levels, which in turn affects whether the transaction can be completed.