The first half of this year started off with strong momentum in the Mergers and Acquisitions space after a number of high profile Australian corporate deals helped propel the entire sector. Deals such as the Westfield takeover, CBA split and the Santos bid helped drive a robust deal-making first half aided by lower interest rates, strong equity markets and a developing tech sector. A combination of deals in financial services, healthcare as well as media and consumer markets kept the sector buzzing. The first half of 2018 saw a 19% increase in deals to total 564 deals, worth over $58bn.
Unfortunately the strong momentum seen in the first half hasn’t quite carried over into the third quarter. M&A deals contracted with a lot of the activity centred on the big banks demerging non-core assets following revelations from the Royal Banking Commission and an onslaught of energy takeovers propelled by soaring oil prices. Nevertheless, a few well known Australian telecommunications and media brands announced merger deals which helped drive M&A activity in the quarter due to changes in regulation around media ownership. The largest deals this quarter was the planned merger of TPG Telecom with Vodafone and the merger of Fairfax and Nine Entertainment Co.
We think the area to watch for Australian investors for the remainder of 2018 is energy and financial services. Due to the findings from the Royal Commission, we expect more financial institutions to consider offloading unprofitable or non-core assets to focus solely on their core business. There are still a number of insurance and superannuation institutions yet to be called, that could initiate further demerger activity. And we expect further consolidation in the oil and gas space as the oil price heads towards US$100 a barrel.
Deals completed or in play
- TPG Telecom (TPM) – The biggest deal of the quarter was TPG Telecom and Vodafone Hutchison Australia announcing a merger of The new entity will have enough scale and financial resources to take on Telstra and Optus, with an enterprise value of $15bn. Revenue of more than $6bn. The deal, will give TPG shareholders 49.9% of the new group and Vodafone Hutchison’s the remaining 50.1%.
- Fairfax Media (FXJ) and Nine Entertainment (NEC) agreed to merge July this The merged entity will be a $4.2bn media company with a suite of assets across the sector. Nine shareholders will have 51.1% of the combined business, while Fairfax shareholders will have 48.9%. The transaction is expected to be completed by the end of the year.
- Amcor (AMC) – Is making a $7bn takeover of its NYSE listed rival Bemis Analysts believe the move is a pre-cursor to an eventual US listing. Amcor generates 85% of its revenue from the US, Europe and Middle East markets and the remainder from Australia. So the listing makes sense.
- SCA Property Group (SCP) announced the purchase of Vicinity Centre’s (VCX) $573m portfolio. It will include ten retail centres; Lavington Square and West End Plaza in New South Wales, Stirlings Central and Warnbro Centre in Western Australia, Currambine Central, Kalamunda Central, Bentons Square and The Gateway in Victoria, North Shore Village and Oxenford Village in Queensland.
- Suncorp (SUN) has sold its life business – As part of its FY result, the insurer announced a non-binding heads of agreement with TAL Dai-ichi Life Australia to sell its life insurance business for $725mn. The move was widely expected and aims to reduce expenses and target top-line revenue growth of 3-5%.
- Capilano Honey (CZZ) – Is looking to be taken over by a Chinese consortium composed of private equity fund Wattle Hill and investment manager Roc Partners. The scheme of arrangement offers Capilano shareholders either $20.06 a share in cash or a one-for-one share swap in the new company. There could be the potential for a bidding war with Bega Cheese (BGA) buying a parcel of shares at an average of $21.08, taking its stake to 5.76%.
- APA Group (APA) takeover – The ACCC has given the green light for CK Group to go ahead with its $13bn takeover of APA It has been the subject of debate as to whether APA, which transports more than half the gas used in the country, should be sold to a Hong Kong-based firm. The company now awaits the approval of the Treasurer.
- Amazon has purchased a smart doorbell company “Ring”. It paid $1bn for a company that manufactures doorbells and record live videos. It sends back to client’s
- BWX Limited (BWX) – Shareholders were dealt a blow this quarter after Bain Capital announced it would not proceed with its planned Bain Capital was not willing to increase its $6.60 a share bid and after 12 weeks of due diligence and walked away.
- Sky – A bidding war has erupted for British broadcaster Comcast overtook rival Twenty-First Century Fox in a $39bn takeover of Sky by submitting a much higher bid. It offered £17.28 over Rupert Murdoch’s Fox, £15.67 per Sky share.
Market action – IPOs
- Coronado Coal – Is looking to raise between $1.2bn-$1.4bn in the biggest ASX float of the It will also be the largest mining float we’ve seen in the world for some time. It is the world’s fifth- biggest producer of metallurgical coal with three coal mines in the US: Buchanan, Logan and Greenbrier. Shares will trade between $4 and $4.80 via an issuance of new CHESS Depositary Interests.
- One of the larger IPO’s this year is the listing of Tencent Music Entertainment Group. It is the largest music-streaming company in China and has applied to list on the NYSE and NASDAQ Global Market under the symbol TME. It is seeking to raise $2bn. Parent company Tencent owns 58% of the company, while Spotify owns 9.1%.
- BHP has sold its Eagle Ford, Haynesville and Permian Basin shale assets for $10.5bn to The deal will increase its US onshore oil and gas resources by 57%. BHP first purchased the assets in 2011 for more than$20bn right at the peak of the oil boom. It then spent another $20bn developing the assets. It ends what was been a disastrous venture for the Australian miner.
- Firetrail Investments – Cancelled the launch of its listed investment company, Firetrail Absolute Return Limited via an IPO. Management blamed a lack of diversity of investors for pulling the The poor performance of the $1.2bn L1 Capital LIC likely impacted on sentiment towards this offer.
- YouFoodz IPO – The meal delivery kit company is said to be considering an IPO to secure funding for expansion.
- Chinese tech companies have had a robust year, raising money from investors from around the globe. Ant Financial, Alibaba’s digital payments platform is valued at around $150bn and is reportedly planning to list at the end of 2019. Didi Chuxing which is China’s equivalent of Uber, valued at $56bn, is working toward an IPO in the US towards the end of 2018 or early 2019. The company is however facing backlash from regulators and customers after two separate deaths that occurred from its
- Voluntary Administration – And finally, Max Brenner, the famous Australian chocolate chain has called it quits, going into voluntary administration after poor sales brought about its Max Brenner is headquartered in Sydney and has up to 600 staff. SumoSalad, the popular health fast food chain also followed suit, putting the business into voluntary administration in July this year after it too suffered a similar fate.