Foreign bidders will again be a force to be reckoned with across the Australian listed market in 2015, with law firm Gilbert + Tobin tipping offshore suitors will account for the lion’s share of deal activity.
Releasing its Takeovers and Schemes Review – 2015, Gilbert + Tobin found foreign bidders featured in 70 per cent of public company mergers and acquisitions last year by numbers, and 74 per cent by value. That was up from about 50 per cent in 2013. The report took into account public company transactions valued at more than $50 million.
Partner Neil Pathak said a sustained decline in the Australian dollar meant this year local targets were clearly on the radar of foreign companies, as they were getting “progressively cheaper.”
“Certainly this year we’ve had a lot of enquiries from foreign bidders,” he said.
Favourable financing markets for deals were also stoking the appetite of companies offshore and Gilbert + Tobin expected foreign bidders to account for similar levels of M&A activity this year as they did in 2014.
“I don’t see the interest from foreign bidders backing off,” senior lawyer Nirangjan Nagarajah said.
This year, Japan Post swooped on Toll Holdings while in 2014, offshore firms acquired local companies including Roc Oil, Aurora Oil & Gas and David Jones.
The increased inbound activity coincides with more debate on the topic, which will continue after a March 20 closing date for submissions for a federal government review of Australia’s foreign investment framework.
REAL ESTATE SINGLED OUT
Gilbert + Tobin singled out the real estate sector as the part of the market to watch in 2015, as factors such as low interest rates, cost savings associated with consolidating assets, and a lower Australian dollar, would ignite transaction activity.
“It is a fairly precise financial calculation with less chance of external factors impacting the deal,” partner Craig Semple said of deals in that industry. Mr Semple believed total deal activity would be strong this year without shooting the lights out.
“It is a good flow but it is not breaking any dams,” he added, noting that the volume of transactions announced and in the pipeline, was spread broadly across sectors.
The report found the average takeover premium commanded by targets rose to 33 per cent in 2014 , from 28 per cent a year earlier. Consistent with the numbers for the previous two years, however, transactions of more than $500 million had a lower average premium than smaller deals. In 2014, that was 22 per cent.
Mr Semple said the higher takeover premiums were linked to a decline in hostile takeover bids, as suitors tended to pay more to get a target to agree to terms and “maximise the prospect” of a transaction completing.
Despite the optimism, Mr Pathak recognised that in many cases difficulties existed in getting deals across the line. He noted that regulatory approvals often stymied deals while private equity found it difficult to complete public company transactions.
Gilbert + Tobin expected a flurry of activity this year in real estate and the energy and resources sectors, while privatisations and cashed up private equity firms would also bolster activity. They also tipped M&A in financial services and noted players in the media and technology sectors were already posturing before potential changes to legislation.
Globally, it has been a strong start to the year for announced deals which amount to $US801.5 billion ($1.03 trillion), the highest first-quarter total since 2008, says Dealogic. The $US46 billion proposed merger of HJ Heinz and Kraft Foods Group is one of 12 $US10 billion-plus mega-deals this year. Locally, M&A has had its strongest start to the year since 2011, with $US32.3 billion in announced transactions so far.