The Australian market for public M&A activity saw another strong year in FY18 according to MinterEllison’s review of the deals landscape, Directions in Public M&A 2018, launched today.

  • 37 deals in FY18 at $50m+
  • Strong mid-market activity with 21 deals in $50 - $500m range
  • 7 mega $1b+ deals representing 19% of deal volume
  • foreign bidders comprise 78% of bidder type
  • private equity a driving force in public M&A in FY18

The Report identifies a significant trend of continuing M&A activity across both the mid-market and the mega market, with companies at all levels aggressively pursuing M&As, despite ongoing volatility and geopolitical uncertainty.

Alberto Colla, public M&A specialist and MinterEllison Partner said that one of the key reasons for the buoyant market is the difficulty faced by companies in mature industries of achieving organic growth.

“Businesses are looking for ways to grow and they have been prepared to swing hard to acquire strategically compelling assets,” said Mr Colla. “While volatility has been a characteristic on both local and international markets since the GFC, companies in mature industries are still prepared to pay a premium to "buy growth" as part of their strategy to access new regions, products and knowledge. That’s driving continued activity.”

Directions in Public M&A 2018 also identifies heightened opportunism as a key driver of M&A transactions in FY18, as bidders moved quickly to take advantage of quality targets whose share prices were depressed or languishing. It also notes surging private equity interest in ASX-listed companies across a wide range of industries.

In this active climate, the number of auctions for ASX-listed targets jumped in FY18, reversing the trend of the previous year when auctions activity was subdued. Mr Colla said this was the result of highly motivated acquirers playing the strategy card and being prepared to employ aggressive tactics to win.

“We've been involved in nearly all of the recent major auctions for control, including AWE, Sirtex and Gateway Lifestyle Group – our clients were successful in two out of those three auctions,” he said. "We see the trend towards increased auctions extending into FY19."

The Report also notes the increasing preparedness of bidders to launch hostile bids, with mixed success in FY18. Hostile bidders are increasingly prepared to by-pass target boards and put offers directly to target shareholders that are at an attractive premium to the prevailing market price, albeit one that is often coming off an opportunistically low base.

“Hostile takeovers have again been prominent in FY18, despite heightened execution risks,” said Mr Colla. “These include no access to due diligence beyond publicly available information on the target; the prospect of the target launching a robust defence including actively soliciting competing bids; and the lack of bidder deal protections that are an established feature of friendly deals.”

Industry Sectors Watch List

Mr Colla said sectors to watch for consolidation in FY19 year include health and aged care, information technology, mining and minerals, and food, beverages and tobacco.

  • Metals & Mining - was a standout in FY18 and continued activity is predicted.
  • Real Estate Investment Trusts (REITs) with activity driven by both local and foreign bidders.
  • Medical - activity driven by private equity looking for strategic targets.
  • Retail Sector - M&A activity will likely dampen in the retail sector except for targets in distress.

Outlook

The Report also noted that foreign bidders had continued to dominate the Australian public M&A marketplace in FY18 and Mr Colla said he saw that continuing.

“Appetite for foreign investment in Australia remains strong, particularly from the US, with further Japanese interest expected in the mid-market,” Mr Colla said.

“We believe US and Japanese investment in particular will continue over the next 12 months. This activity is likely to centre on mid-market transactions, and in sectors such as robotics and IT, where Japanese companies can add value through their unique strengths.”

In addition, changing regulatory frameworks, particularly from ASIC and the ACCC would continue to impact transactions in the next 12 – 24 months.