The final quarter of 2018 proved a standout period for M&A deals after hitting a seven-year high of $US134.3bn in deals done. It capped off another strong year that saw significant corporate activity across both the mid and large cap space despite bank funding pressures caused from the Royal Banking Commission, escalating trade war tensions between the US and China and geopolitical uncertainty surrounding Brexit. The good news is that companies are still prepared to pay a premium for quality businesses in order to expand their growth outlook and to access new markets or products. In fact, according to KPMG’s Australia’s Evolving Deals Landscape survey, Australia recorded the largest number of M&A deals (598) on record, making it quite a successful year for M&A. Much of the activity came from US corporate deal makers whilst there was a substantial decline in Asian buyers, with those from China and Japan scaling back acquisitions.
Two factors that have helped increase M&A deal flow can be attributed to the upcoming reporting season and a credit squeeze as a result of the royal banking commission. The upcoming reporting season creates early opportunity for companies looking for upside potential from any corporate deals leading into 2019. With balance sheets healthy and borrowing costs low, the environment remains supportive of M&A activity. On the flip side, an influx in debt funds and private debt capital markets taking on a larger role in providing capital beyond the big four banks, encouraged M&A activity. The volume of funding coming into the market has been increasing together with offshore funds. Another distinct change seen across the wealth management space is the movement of capital out property and into M&A and alternative investments. What we are witnessing is the movement of private equity into Australia.
A key thematic among the larger companies was the divestment in non-core assets. A lot of the conglomerates such as Wesfarmers, divested away from their non-core assets and redeployed capital into the business’s core assets to improve productivity. We think this thematic will continue throughout 2019.
This year the clear standout in M&A space was Metals & Mining. There has been resurgence for foreign investment in Australia particularly from the US and Japanese. Real Estate Investment Trusts (REITs), Medical companies and the Retail Sector, were others notable areas of M&A activity. The food and beverage sector remains an attractive industry for M&A activity but FIRB and Government politicians are hardening their stance to allow foreign takeovers to pass through. The Chinese middle-class will continue to seek out clean and green Australian for their families which in-turn will keep M&A activity in this sector at a heightened level throughout 2019.
Deals completed or in play
Some of the larger deals included Nine Entertainment buying Fairfax, Amcor purchasing US-based Bemis and most TPG Telecom and Vodafone Hutchinson Australia announcing a merger of equals. This deal however has been clouded with doubt after the ACCC voiced its concerns that a TPG- Vodafone merger may reduce competition. The telco also announced that it had decided to cease the rollout of its mobile network in Australia due to the use of Chinese Huawei equipment which is banned in Australia. The year finished with Transurban leading a consortium that acquired a 51% stake or $9 billion deal in the WestConnex road project.
- Reece (REH) and Reliance Worldwide (RWC) both announced large deals. REH purchased US-based plumbing and HVAC product distributor, MORSCO, whilst RWC is on a major expansion drive in Europe following a large acquisition in
- Transurban (TCL) – Was one of the biggest deals of the The company acquired a 51% stake in Sydney Motorway Corp for $9.3 billion. The stake was purchased from the NSW Government.
- Healthscope (HSO) – The private hospital operator received a $4.1bn takeover bid from a consortium headed by BGH Capital and The latest proposal specifies an indicative price of
$2.36 cash share. The Healthscope Board is assesses the proposal. AustralianSuper has a 14%stake in Healthscope.
- Barrick Gold – Canada’s largest gold company made a friendly $US6.5 billion scrip-bid for African gold miner The combined entity will have a market value of $US19.5bn.
- Fleetwood Corporation (FWD) – Completed the acquisition of MBS which is a Sydney based manufacturer and installer of prefabricated modular buildings. The deal was for $34.15 million plus a potential earn-out.
- AWE Limited (AWE) – Recommended that its shareholders accept Mitsui’s cash consideration of $0.95 per share for a full It follows a previous bid of cash and scrip from Mineral Resources (MIN). The new offer was not matched. The Mitsui offer values AWE at a market capitalisation of $602m.
- Sirtex Medical (SRX) – Accepted a
$1.9bn takeover bid by Chinese drug company CDH Grenetech Ltd. The bid values the company at $33.60 per share which came just days before a $1.6bn takeover bid made by US based Varian was to be accepted. The new offer was not matched.
- Gateway Lifestyle Group (GTY) – Recommended its shareholders accept a
$683m takeover offer from US company Hometown. It follows a bidding war between Hometown and Canada’s Brookfield.
- APA Group (APA) – The Federal government blocked a takeover bid led by Hong Kong-based CK Group from buying the natural gas and energy The
$13 billion takeover of APA was deemed to be a threat to the country’s national interest. Its purchase would have resulted in a single foreign company having sole ownership and control over Australia’s most significant gas transmission business.
- NAB – Is still trying to offload its MLC wealth business following CBA’s divestment of Colonial First State Global Asset Management. NAB will provide an MLC investor briefing before May
- IOOF (IFL) – Sargon, a financial technology and infrastructure company, will buy IOOF’s Australian Executor Trustees (AET) Corporate It has roughly $30 billion in funds under supervision.
- AMP – Announced the sale of its Australian and New Zealand wealth protection to Resolution Life for $3.3 billion. The deal is expected to be completed in 2H19 subject to regulatory AMP Capital bought a stake in Care Management Group.
- ANZ – Has pushed back the sale of its One Path Pensions & Investments business to IOOF Holdings (IFL) due to changes in contracts following action from
Market Action – IPOs
- Powerwrap Limited – Is aiming to IPO around April 2019. Powerwrap remains one of the fastest growing platform providers and is looking to double its FUM in the next three years. The company benefits from the financial services royal commission and growth in the number of wealthy
- AD Capital Group – Is planning a $10m listing this The company is a wealth management firm and will used funds raised to purchase advisory firms that have premium financial planners across Australia.
- Candy Club Holdings – Is a US- based subscription sweets The company is looking to IPO towards the end of the year.
- Jobstore – The Artificial Intelligence online recruitment platform is looking to raise $8m via an IPO at 20c a It automates hiring for corporate customers using algorithms that advertise jobs on 50 different employment sites.
While it’s been a volatile year for equity markets across the board, the mergers & acquisitions space has bucked the trend and is absolutely booming. While it’s hard to attribute it success to one single factor, experts have put it down to a mixture of events such as the Royal Banking Commission, fall in the Australian dollar, recent shift in US interest rates or cashed up US private equity firms seizing opportunities to buy out quality Aussie companies. Either way though, M&A activity is holding up strong and should continue this way throughout the rest of 2019. A recent article in the press highlighted the fact that local Private Equity firms, industry super funds and venture capital firms are heavily cashed up with some $9 billion in spare cash, ready to be spent. Appetite for foreign investment in Australia also remains strong because of the low Australian dollar and accommodative business landscape. For these reasons we think there is upside potential for investors looking to take advantage of M&A activity during the course of the year.