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Australia overtakes India in M&A activity

Australia overtakes India in M&A activity

AUSTRALIA HAS emerged as the most popular target in the Asia Pacific for mergers and acquisitions, a newly released report reveals.Australian companies have overtaken Indian companies as the…

AUSTRALIA HAS emerged as the most popular target in the Asia Pacific for mergers and acquisitions, a newly released report reveals.

Australian companies have overtaken Indian companies as the most favoured M&A target in the Asia Pacific region, with 470 deals worth US$33.7 ($41.1) billion since 1 January this year. Worldwide, it ranks as the ninth most targeted nation, according to the Thomson Financial Report.

Australian law firms working on some of the biggest deals are putting all the activity down to just a few, not particularly unusual, factors. What is unusual, however, is that all of them are happening at the same time, making it M&A boom time in Australia.

An “M&A mentality” goes through waves, Tony Damian, partner at Freehills told Lawyers Weekly. But in the current climate, with big international players in the private equity market are discovering Australia, there is a period of intense consolidation of resources, and there are a number of well funded infrastructure funds all hunting and at play, Damian said.

There is a lot of inbound interest in Australia at the moment because it’s a stable place to invest, and it has features that are attractive to international players, he said. “Any one of these things would lead to a lot of activity but all these things at play at once means we are seeing what we are seeing.”

The past 12 months has seen increased deal activity, as well as a greater frequency of bigger deals than Australia has seen before, Damian added.

The Coles Group’s acquisition is expected to be worth US$16 ($19.6) billion Asia Pacific’s largest private equity buyout, overtaking a US$11 ($13.5) billion bid by a private equity consortium for Qantas Airways Ltd.

Alinta’s US$10.7 ($13.1) billion acquisition by investor group Babcock & Brown and Singapore Power International, announced on 30 March, ranked as the second-largest Asian M&A deal, next to Vodafone’s acquisition of Hutchison Essar, worth US$13 ($15.9) billion.

According to Freehills’ Damian, there has been a change in the way that private equity has traditionally been approached in Australia, and now most companies are potential acquisitions. “Not all are potential acquisitions, but when you start throwing in iconic companies like Coles, Alinta, Rinker, Promina; and that is all at once, not over a three year period,” he said, suggesting this has led to greater interest from private equity funds.

But those private equity funds also have a lot of money to spend, Damian said, which drives many of the current deals. He said international players have been coming out to Australia in the past 12 months, which has been an important impetus for the increase in M&A deals.

Mallesons Stephen Jaques partner Stuart Fuller agreed, adding that “there is a lot of money looking for a home to invest”.

Fuller said there is global activity in M&A, which has had an impact on the Australian market. “If you look at Europe, the US, Australia and Asia, and I think you will probably say they are driven by common factors to an extent; that there are large amounts of cash looking for investments, which is driving the market.”

Companies are taking advantage of that liquidity in the market to make strategic plans, Fuller said.

But he also put the M&A activity down to government regulation, in that it reacts to what the government does. An example is media reform, and that is coming through in the Channel Nine deal, where Mallesons acted for CVC. Also, he cited Network Ten, which is up for sale and at which four or five private bidders and trade commercial players are looking.

From their clients’ boardrooms, the current “M&A mentality” can be easily viewed, according to Freehills’ Damian. “You see it when you talk to boards who are considering things,” he said. And it’s evident that there is strong competition in those very boardrooms, he said.

“It’s a competitive market. It’s competitive not just between private equity players, for instance, but you have the private equity players competing with industry players, competing with infrastructure funds,” Damian said.

M&A is simply a “hot spot” in the Australian market at the moment, said Mallesons’ Fuller, which is driving a lot of associated activity. “The M&A practice in Australian firms like ours then drives a very high level of banking activity, because the deals all need debt funding. It drives heavy use of competition advisers.

“In the Australian market, which is fairly consolidated anyway, there is always a fair degree of competition analysis that needs to be done. It drives tax work, as well. So the M&A space is certainly the most busy in the sense of originating deals driven by the M&A teams,” he said.

Fuller added that there is a fairly significant flow on effect through the rest of the market, driven by this activity.

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