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M&A showing no signs of slowing down in 2022
Two Herbert Smith Freehills partners have predicted Australia’s M&A market will continue to boom into 2022 and revealed a number of issues deal-makers should be aware of heading into next year.
Lauren Croft
HSF partners Tony Damian and Andrew Rich have revealed their top 10 predictions for the Australian M&A market in 2022, including the suggestion that Australian deal-makers have another very busy year ahead, with the M&A post-pandemic boom showing no signs of slowing down.
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“2021 was a massive year for M&A, both globally and locally. In Australia, it was a combination of a lot of deals, but also a lot of large and very important deals (for example Sydney Airport, Santos/Oil Search and BHP/Woodside),” the pair stated in their predictions.
“As we approach the end of 2021, we see the strength in M&A continuing and expect another very busy year in 2022. Plenty of tailwinds to drive another big year, which we think outweigh the negatives from a range of uncertainties.”
The role of super funds in public M&A deals will continue to grow, according to the predictions, after playing roles in a number of large deals in 2021. Additionally, ESG issues will continue to play an increasing role in M&A deals.
According to the pair, “in 2021, we also saw ESG issues actually driving deal flow: note the significant deals in the oil and gas sector. This trend will continue. We expect 2022 to see more of the same and for M&A to be a solution for ESG matters.”
Deal-makers should also expect to see a number of public M&A deals continue to utilise deal structures such as stub equity and earn-outs to make the offer more attractive to target shareholders. For example, in the MIRA acquisition of BINGO this year, there was a stub equity feature that included an earn-out, thus providing BINGO shareholders with the option of staying in and also of receiving a consideration that varies with the performance of the business.
“We have also seen deal proponents become increasingly comfortable with stub deals aimed at particular large shareholders as opposed to all shareholders, despite this taking the relevant large shareholders out of the voting pool. There has been a strong level of interest in these deal structures and we expect to see more of them in 2022,” according to Mr Damian and Mr Rich.
The pair have also named the resources sector as one to watch in 2022, encompassing mining and oil and gas consolidation, as well as infrastructure and property.
Additionally, warranty and indemnity (W&I) insurance has become a common feature of the Australian M&A landscape. According to the predictions, “a consequence of the M&A boom is that W&I insurers have been stretched. There are M&A participants who have as a consequence been forced to consider other risk allocation techniques.”
As auctions for control of ASX-listed entities (including Australian Pharmaceutical Industries, Mainstream, AusNet Services and Vitalharvest) became more common this year, the pair predicted that this trend would continue and potentially even involve multiple bidders and increasing competition.
Similarly, schemes of arrangement are predicted to increase within M&A transactions, as well as consortium bids for high-value assets and businesses.
“Given the significant size of the equity cheque required for many prized assets and businesses, with foreign and domestic players being very comfortable in joint venture ownership structures, we expect to see more consortium bids in 2022. No ASX-listed entity can consider itself immune from a takeover approach anymore,” the pair concluded.
