Optimism in a contracting deal climate has been underscored in the latest report released by Herbert Smith Freehills on Australian public M&A.
HSF has given cause for “a level of optimism” looking to FY2016-17 projected public M&A deals. In its annual report for 2016 the firm cited consistent interest from foreign bidders and evidence of sectoral strength as signs that things are looking up. The top-performing sectors for mega-deals have been the industrial, consumer products, telecommunications, utilities and diversified funds sectors.
There were five fewer public M&A deals announced in FY2015-16 than in the previous year. The 50 public M&A deals announced in FY2015-16 was 27 fewer than in FY2013-14.
HSF partner and report co-author Paul Branston (pictured) said the year began in a promising fashion. While the expected amount of deals did not ultimately eventuate, he indicated that the number of mega-deals in FY2015-16 remained steady. Mr Branston suggested that the record-setting Asciano deal worth approximately $9 billion helped the figure.
“While the number of mega-deals remained consistent year on year at seven, the total value of mega-deals in [FY2015-16] reached $27 billion, up from $22.4 billion in [FY2014-15]. This was due in part to competing proposals for Asciano, which valued the company at [around] $9 billion, making it one of Australia’s largest M&A deals on record,” Mr Branston said.
“Activity tailed off in the third quarter and never fully recovered, meaning overall activity levels were relatively low,” he said.
HSF’s new report also revealed that 41 per cent of deal bidders for FY2015-16 originated from outside Australia and New Zealand, contributing about $14.4 billion worth of deals.
According to Mr Branston, the low Aussie dollar is attracting more foreign interest in Australian assets. He suggested that this, combined with a pick-up in the Australian capital markets pipeline, is expected to improve market confidence.
“The economic climate remains conducive to M&A in Australia, with modest domestic growth rates driving companies to look to M&A for growth. What’s more, continuing low commodity prices, the low Australian dollar and low interest rates will continue to drive interest in Australian assets from overseas,” Mr Branston said.
“Our conversations with clients reveal a desire to grow via acquisition, with opportunities being actively pursued and a strong degree of confidence in the market,” he said.