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Local M&A market defies credit crunch

Local M&A market defies credit crunch

THE LATEST mergers and acquisitions league table results fly in the face of predictions of a post-credit crunch crash in Australian M&A activity. The Bloomberg half-year M&A legal…

THE LATEST mergers and acquisitions league table results fly in the face of predictions of a post-credit crunch crash in Australian M&A activity.

The Bloomberg half-year M&A legal adviser league tables for Australia and New Zealand show that the Australian M&A market has weathered the credit-crunch storm surprisingly well.

The same is true for most of the Asia Pacific (excluding Japan), despite a widespread nosedive in activity across North America and Europe.

According to Bloomberg, Australia’s combined deal value is up 80 per cent compared with this time last year. However, this figure is significantly inflated by the Rio Tinto/BHP deal, worth about $US147 billion ($153 billion) on its own.

This is almost nine times the value of the next-largest deal — the St George-Westpac merger. The number of deals is slightly down on last year but is still pulling up strongly, with 594 deals announced for the first half of this year compared with 771 in the first half of 2007.

Freehills has reaffirmed its position as Australia’s M&A legal powerhouse, topping the tables for both the number and the combined dollar value of announced deals. Freehills’s deal count of 69 is far and away above that of Mallesons Stephen Jaques, which, with 40 deals, comes in at number two.

Filling out the remaining spots in the top five of the rankings are Blake Dawson, Minter Ellison and Allens Arthur Robinson with 27, 26 and 21 deals respectively.

In terms of total deal value, Freehills — with $US174 billion ($181 billion) — sneaks in ahead of Allens Arthur Robinson’s $US171 billion ($178 billion).

Following Allens are the nine other firms involved on the mega Rio Tinto-BHP Billiton deal.

Freehills partner Rebecca Maslen-Stannage said that this has come as a welcome surprise. “As M&A lawyers, we always think the tap is about to turn off — that the market’s not going to fly tomorrow.

“The highlight [this year] for me has been that even in what looks like one of the most challenging sets of circumstances, the market’s still here,” Maslen-Stannage said.

She said the continued strength of the market has been a result of a shift in the nature of deals — most notably, a move away from geared cash deals towards scrip deals. In addition, she said, the resources sector has been relatively unaffected by the credit crunch and remains an M&A hot spot.

The change in market conditions has also opened up opportunities for some parties to act on ideas that wouldn’t have been feasible last year, Maslen-Stannage said.

“We’ve seen that already with trade buyers. Last year when private equity was very strong, some of the trade buyers were getting outbid for things, but there’s now a greater opportunity for them, with prices having dipped, to take advantage of those conditions and get into some industry consolidation,” she said.

Another characteristic of this years’ market, Maslen-Stannage explained, has been the steady flow of medium-sized deals, as opposed to the “mega-deals” which were a feature of the market in 2007. “[Medium-sized deals] have been quite a large component of the deals we’ve got this year — obviously with a couple of big standout deals as well,” she said.

And while the mega-deals might make for more dramatic headlines, Maslen-Stannage said that her junior team embraces the slightly smaller deals because they “get a greater chunk of the action, control and involvement on the [smaller] deal than on the mega-deals”.

Maslen-Stannage believes that the market will continue to hold up well for the remainder of the calendar year, especially in the “friendly deal” space.

“At the moment everyone’s focused on scheme of arrangements and certainty of outcome — because they don’t want to get into a bidding war in this type of market,” she said.

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