Mergers and acquisitions (M&A) have always been a steady and natural feature of corporate Australia. From supermarket chains to insurers, from tech players to miners, listed companies regularly pursue acquisitions, divestments, and mergers as part of their ongoing business strategies.

This week’s IAG acquisition of RAC WA’s insurance business for $1.35 billion is simply the latest example of a routine, though strategically important, transaction in the Australian market.

Whether it’s to gain market share, consolidate in a fragmented sector, refresh product lines, or divest non-core assets, M&A is not a sign of booming activity or downturn. It is simply part of the day-to-day workings of listed businesses.

Why M&A Happens and Why It’s Always Part of the Landscape

• Portfolio reshaping: Companies regularly fine-tune their business models, exiting older or non-performing divisions and acquiring assets that align with their future strategy.
• Market consolidation: In industries like insurance, banking, aged care, and infrastructure, efficiency and scale naturally drive consolidation.
• Access to technology or customers: Rather than develop capabilities from scratch, companies often acquire them via bolt-on deals.
• Capital recycling: Many firms dispose of mature or capital-intensive assets to free up funds for more agile or higher-margin businesses.

These are ongoing strategies that companies employ through all stages of the market cycle, not just in booms or downturns.

The Role of the ACCC and Regulatory Considerations

While M&A remains ever-present, the regulatory environment continues to evolve. The ACCC is increasingly wary of deals that could entrench dominant players or reduce consumer choice.

Recent ‘creeping acquisition’ laws now give the ACCC powers to assess the cumulative impact of smaller, sequential deals, rather than only large one-off takeovers.

For investors, this means:

• Deals that seem straightforward may now face more complex regulatory hurdles.
• Approval processes may take longer, adding execution risk and uncertainty.
• The potential for conditions being attached to deals (such as forced divestments) may impact the long-term value.

What Investors Should Look Out For When Companies Announce M&A Deals

While M&A is a routine part of business, not every deal adds shareholder value. For investors, critical thinking and analysis are key when assessing any transaction. Here’s what to watch:

1. Strategic Rationale

• Does the deal align with the company’s stated strategy?
• Is it an adjacent, complementary acquisition, or is it venturing into unfamiliar territory?
• Does it strengthen the company’s position in a sector, market, or capability where they already have expertise?

2. Valuation and Pricing Discipline

• Is the company paying a fair price based on the target’s cash flow, earnings, or assets?
• Are the expected synergies realistic, and how long will they take to materialise?
• Be cautious of deals that require optimistic assumptions to justify the purchase price.

3. Funding Method and Balance Sheet Impact

• How is the deal being funded — cash, debt, equity, or a mix?
• Will the transaction dilute existing shareholders, or put pressure on the company’s debt position?
• Is the company maintaining a sensible balance between growth and financial stability?

4. Integration Risk

• Many deals fail not because of bad strategy, but because of poor execution and cultural misalignment.
• Can the company integrate the new business seamlessly?
• Has management demonstrated capability in integrating past acquisitions?

5. Regulatory and Execution Risk

• Does the deal face regulatory approval (like ACCC, FIRB, or other bodies)?
• Is the industry already concentrated, increasing the chance of intervention?
• Delays or conditions imposed by regulators can affect the timing, cost, and financial returns of the deal.

6. Earnings and Return on Capital Impact

• Will the deal add to earnings per share (EPS) in the near to medium term?
• Is the return on invested capital (ROIC) likely to exceed the company’s cost of capital, ensuring value creation rather than value destruction?

The Bottom Line

M&A is not inherently good or bad. It is simply a core part of corporate strategy in Australia and globally. As an investor, it’s important not to get caught up in the excitement or headlines when deals are announced.

Instead, focus on the fundamentals:

• Does it make strategic sense?
• Is it being done at the right price?
• Is the company disciplined in execution and funding?
• Are the risks — regulatory, integration, financial — being managed prudently?

While M&A will continue to be an ever-present feature of the ASX, investors who take the time to assess the underlying details of each deal, rather than reacting to the headlines, will be better positioned to identify which deals are likely to deliver long-term shareholder value.