Herbert Smith Freehills M&A partners Tony Damian and Simon Haddy have released their top 10 predictions for the M&A space in the coming year.
The first trend highlighted will be mixed activity levels, according to the pair.
“It is trite to say that the world economy faces interesting challenges going into 2017. On the political front, the combined effect of Brexit, a Trump presidency and other events such as the Italian referendum vote and the rise of minority parties around the globe, has yet to be felt,” they said.
“In particular, the role that these events will have on a globalised and interconnected world economy can be seen as a key driver to what the next few years of growth will look like.
“Mixed economic activity levels around the world combined with political uncertainty should result in mixed M&A activity levels in Australia. Some major deals throughout the year will prove highlights to a good but not outstanding vintage.”
Secondly, Mr Damian and Mr Haddy predict that Chinese bidders will be less active in 2017 in comparison to recent years.
“Recent word of a renewed scrutiny on outbound acquisitions by Chinese companies, perhaps driven by leveraging concerns, suggests that Chinese bidders will be less active in 2017 than in recent years. We expect this to be a focus of the first half of 2017,” they explained.
“Australia remains a friendly destination for foreign and Chinese investment, and this is likely to remain so as other developed economies apply their own renewed focus to foreign investment.”
Oppositely, both partners expect North America will be a big player in Australian M&A transactions in 2017.
“In FY 2016, North American bidders provided 40 per cent of deal value in Australian public M&A. There were also many significant private M&A processes North American bidders were involved in. We think 2017 will see a continued focus on Australia from US and Canadian companies and funds,” Mr Damian and Mr Haddy said.
“Business deregulation in the US is an area of common ground for the incoming administration and Congressional Republicans. Favourable developments on that front will give US companies confidence to continue executing M&A deals. We also see continuing strong interest on Australian assets from the side Canadian of things.”
Fourthly, Mr Damian and Mr Haddy predict the infrastructure and mining sectors will see the highest M&A transactions over the year.
“Infrastructure and mining look like top picks across the sectors for 2017. The hopefully green shoots in some mineral prices might drive confidence with positive M&A driving the sector,” they said.
“We also suspect that high levels of interest in the renewables sector will continue, and that property might see some M&A activity.”
The partners believe there will also be more consortium bids in the Australian M&A space next year.
“Inspired by the Asciano transaction, we see strong prospects for more consortium bids – both for regulatory reasons (FIRB and ACCC) or in order to facilitate access to different parts of targets’ businesses,” they said.
Another trend on the horizon is a change in bid conditions in M&A transactions, according to Mr Damian and Mr Haddy.
“We predict, somewhat bravely, that 2017 might see targets challenging excessively onerous hostile bid conditions and asserting that they are free to pursue their own alternative transactions,” they said.
With hostile bids becoming a little less popular in recent time, the pair also expect bidders to exert pressure on target boards through “bear hug approaches”.
“Leaks and announcements of desires to do deals will be a common part of the M&A landscape in 2017,” the noted.
The eighth trend likely to play out in Australian M&A in 2017, will be the leveraging of court processes for strategic pressure in schemes, according to Mr Damian and Mr Haddy.
“2016 saw three situations where cunning stakeholders were able to impede scheme processes, and achieve their own separate commercial aims, by launching their own court proceedings and complicating scheme processes. We would not be surprised if this kind of strategic litigation continues in 2017,” they said.
FIRB considerations are likely to stay “centre stage”, Mr Damian and Mr Haddy added.
“Barely a week as gone by this year without FIRB hitting the deadlines, with the Ausgrid knock-back the most prominent instance,” they said.
“We expect FIRB considerations to remain a significant part of transactions across a wide array of sectors (not least infrastructure, utilities and agribusiness).”
Finally, the tenth trend the partners expect to play out is ASIC continuing to reassert itself in the M&A space.
“ASIC has steadily reasserted itself in recent years in the M&A space – we expect that to continue. Both behind the scenes and public scrutiny of M&A scenarios by the corporate regulator will increase in 2017,” they concluded.
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