As a follow up to last year’s successful event, MAGNUS co-hosted a thought leadership breakfast with Corrs Chambers Westgarth and Bloomberg on Thursday 4 December, 2014. The theme of Show Me the Money: Uncovering Australian M&A Trends in 2015 involved a panel discussion chaired by Bloomberg’s M&A reporter, Brett Foley. The panel comprised:
- Anthony Sweetman, Managing Director, Head of Corporate Client Solutions, Australasia, UBS;
- Charles Graham, Managing Director, Gresham Partners Limited;
- Jaclyn Riley-Smith, Partner, Corrs Chambers Westgarth;
- John Gardner, Managing Director and Founder of MAGNUS.
The discussion touched on a range of factors that have influenced M&A activity in 2014 and the opportunities and challenges for deal making in 2015.
2014 trends: Chinese firms get more confident
Attendees heard that 2014 saw the emergence of several interesting trends in M&A strategy and tactics. In Australia, the first three quarters of the year saw the highest deal count in 5 years, with Australia being the biggest acquirer and most sought after region in the APAC. Chinese companies were increasingly involved in contested takeovers as they began to engage in more hostile bids, suggesting an increased confidence to do deals in Australia. Private Equity (PE) firms maintained a high interest in M&A transactions with public companies, but conversion of interest to executing transactions was relatively low as valuations remained high. Communication and disclosure tactics saw the increased use of ‘no increase, no extension’ statements by bidders as companies sought to inject or preserve momentum into a transaction.
2015 outlook: cautiously optimistic, but threats remain
Turning to 2015, the panel identified some of the most likely influencers on domestic M&A activity including a hamstrung Federal Government impacting on corporate confidence. The improving U.S. economy is encouraging for local market conditions, while concerns about the slowing growth in China may also be somewhat exaggerated. Domestically, the political impetus at the State level continues to be in favour of the privatisation of assets, particularly infrastructure. Panellists noted, however, that the privatisation program in 2015 will be dependent on the outcome of State elections, legislative programs and the capacity of the market to absorb the flow of asset sales – with the timing of deals likely to stretch well into 2016.
PE firms may continue to find it hard to make their desired level of returns if the valuation of public companies remains high. The panel discussed how PE firms established in the 2006-2007 period have struggled to make decent returns and hence this was driving a more cautious approach than otherwise might be expected. If valuations remain high, then this is expected to continue the 2014 trend of lower M&A activity among PE firms in 2015.
Next year may also see the re-emergence of several sectors of the Australian economy that have been suffering in recent years. Sectors such as tourism and associated industries (food and beverage) should benefit from a weakening currency and, although forecasts for iron ore and coal do not show much short-term optimism, certain commodities may be set for an upturn – with uranium one possible example.
The panel discussed the need for the Boards of companies to articulate clear and consistent strategies and to demonstrate how they plan to grow shareholder value before any takeover approach is made. If a Board waits until an approach has been made, it may already be too late, so a clear communication strategy and market engagement plan need to be developed as part of the wider corporate strategy.
Conclusion: an active 2015 for corporate transactions
Overall, the sentiment was cautiously optimistic for M&A activity in 2015 and, while there are a number of uncertainties around macro-economic conditions, the consensus was that there are enough encouraging signs to make the New Year an active one for all involved in corporate transactions.
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