Corporate Finance Perspective on Federal Budget October 2022

While financial markets had been spooked by the recent turmoil in Britain, which reminded investors of the increasing pressure on federal coffers, the Budget’s attempt to repair what the Government refers to as a structural deficit framed around the perilous state of the global economy is not in itself likely to have any impact on the Mergers and Acquisitions (M&A) markets.

For corporates, forward orders and capacity utilisation are strong, and capital investment decisions (including M&A) continue to be made. Clearly, though, significant economic ‘headwinds’ amid a cost-of-living crunch associated with interest rate rises and inflation are building. As highlighted in the Budget, coupled with ongoing global uncertainty, these headwinds are expected to result in economic growth taking a downturn next financial year, which will temper the overall level of M&A activity.

The impact on M&A activity is not likely to be impacted in the sectors where high levels of government funding have been allocated in the Budget to meet election infrastructure commitments (including the construction of road and rail projects), along with the urgent need to ‘Rewire the Nation’ to accelerate electricity transmission projects critical to the transition to renewables and future security of the energy grid.

On the other hand, M&A activity is expected to be more subdued in sectors where cost pressures are not able to be passed through in the form of higher prices or are reliant on discretionary consumer spending.

BDO's Federal Budget Analysis