Bankers strike $5b of M&A deals in Christmas rush

Among the deals on Monday was Stockland’s $1.3 billion purchase of master planned communities from Lendlease and a $1.2 billion takeover of Link, the struggling share registry administrator, by Japan’s Mitsubishi UFJ Financial. Pacific Smiles, a dental chain, is also being taken private by Genesis Capital for $233 million.

Those deals followed major transactions announced last week, including Sigma Healthcare’s merger with Chemist Warehouse, a move which will create an $8.8 billion listed pharmaceutical and retail giant if approved by competition regulators. The Australian Financial Review also revealed Woodside Energy was in talks with Santos over a major consolidation in the oil and gas sector, although there is no guarantee it will proceed. A data room was opened last week.

The late injection of deals proved bankers’ transaction pipelines were full, but transacting remained hamstrung by rebel shareholders, discerning regulatory bodies and see-sawing valuation expectations. Some of these factors were evident when ANZ’s takeover of Suncorp was blocked by the Australian Competition and Consumer Commission, and when Brookfield and EIG’s 400-day-plus tussle for Origin Energy fell victim to opposition from minority shareholder AustralianSuper.

Stalled deal flow has hurt M&A numbers this year as companies sat on the sidelines thanks to economic uncertainties that made it difficult to discern value. Announced M&A in Australia fell to about $US105 billion ($156 billion) this year, from $US122 billion in announced transactions last year, data from Dealogic showed.

“The appetite to do deals is as strong as ever,” said Kierin Deeming, the head of Australia and New Zealand M&A at JPMorgan, adding that managing volatility would continue to be a key concern. But value was still “a bit in ‘the eye of the beholder’,” Mr Deeming, whose team is advising Adbri, said.

All comes down to value

To get M&A volumes up, buyers and sellers will need to find common ground on valuations because the buy side, in particular, has grown reluctant to get into bidding wars for assets.

Nick Brown, UBS’ head of M&A for Asia-Pacific, said there was a view a few years back that private equity firms would be highly competitive and regularly win deals over strategic buyers. But now, as borrowing costs have spiked, corporations are entertaining more M&A activity.

“The greater focus from corporates on strategic growth and synergies, we are seeing corporates confidently participating in processes or discussing acquisitions bilaterally,” he said.

Companies and investors required clarity on macroeconomic factors such as the trajectory of interest rates, to press ahead with deals.

“The biggest call out – this year, it has just been a challenging environment to get transactions done. It is due to the economic uncertainty, the regulatory focus and investor attitudes to bid-ask spreads,” Mr Brown said.

“It all comes down to a view on value. It is harder to value companies in uncertain times, and that is driving bid-ask spreads. If you have a different view around the growth outlook or the cost of funding – that is going to lead to a different valuation.”

E&P’s Mr Holmes said a number of private equity firms were sitting on portfolio assets that they have not been able to sell. The best possible buyer, meanwhile, could be rival investment firms, like when PAG Asia bought Australian Venue Co’s pubs business for $1.4 billion from KKR in August.

“I think you will see assets trade between the private equity firms themselves – we have seen some of that in 2023, and expect to see more next year,” Mr Holmes said.