Last financial year, Australia’s M&A market activity rose to its highest levels since the GFC, before being hit by recent market volatility, according to the third annual Freehills Public Mergers & Acquisitions Report, released today.

The report is the leading study undertaken by an Australian based law firm to examine the trends and structure of public M&A in FY2011. It provides valuable insight to current market conditions and the outlook for local M&A. ‘Australia’s M&A activity was almost on par with pre-GFC levels during FY2011,’ said Freehills Partner Simon Reed. ‘The number of M&A deals announced in FY2011 rose to 104, with a total value of $79 billion committed by bidders, compared to the low point of 72 deals in FY2009 during the GFC.’

The success rates recorded for FY2011 was the highest seen since Freehills has been gathering this data. Over 70% of deals were successful, compared to 55% in FY2010 and only 49% in FY2009.

The leap in success rates was contributed to by a number of factors, including more higher value deals being launched, with perhaps proportionally fewer speculative bids; improved success rates in hostile deals; an increase in the use of deal protection mechanisms; and an increase in the proportion of friendly deals, according to the report.

‘For the first time since the GFC, the energy & resources sector accounted for less than half of overall M&A transactions. While these deals continue to play a significant role, the  more diverse range of industries involved in transactions this year shows just how fundamental energy & resources was for Australia’s public M&A during the GFC,’ said Reed.

‘But inconsistent data for the first few months of FY2012 has left many hedging their bets on how the M&A market will fare in the short term. July 2011saw a significant drop off in activity with only 5 deals announced compared to 15 in July 2010. We then saw a flurry of deals announced in late August, taking the total of deals announced in the first 2 months of FY2012 to 18. A significant number of those deals that have been announced are relatively high value deals,’ said Reed.

Additional findings of the Freehills Public Mergers & Acquisitions Report, include:

  • Existing cash reserves were the funding source in over 60% of deals involving cash consideration, indicating that corporate ‘war chests’ (rather than M&A debt funding) were a key driver in M&A activity in FY2011
  • Fewer hostile deals, but success rates for those hostile deals launched jumped from 31% in FY2010 to 61% in FY2011
  • Foreign bidders were again a key driver in high-end M&A, with foreigners launching 83% of deals over $1 billion in FY2011, compared to 67% in FY2010.
  • A notable increase in the rate of success by Chinese and Indian bidders, indicating that bidders from these regions are becoming more adept in their Australian public M&A activity