Highlights

• The Australian public M&A market has seen more restrained activity in the 12 months to 30 June 2012, in line with global trends.
• The energy and resources sectors continue to dominate public M&A in Australia, accounting for about 50% of transactions.
• Success rates for transactions increased to 81% in FY2012, while the percentage of transactions involving competition between bidders dropped to 5%.
• Levels of inbound cross-border public M&A activity decreased moderately with 46% of bidders in FY2012 being based offshore, down from 51% in FY2011.
• Cash only transactions predominated with about 63% of transactions overall being cash-only. Foreign bidders, in particular, favoured cash bids, with 81% of foreign bidders offering cash only in FY2012.

Posted in:  Australia, M&A (General), Trends & Statistics

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Deal landscape

After a return to pre-2008 activity levels in 2011, Australian public merger and acquisition activity dropped in the 12 months to 30 June 2012 (FY2012), with 83 deals announced and $63 billion committed by bidders, down from 104 deals and $79 billion committed in the previous 12 months (FY2011). This is in line with the trend in global merger and acquisition activity over the corresponding periods, with global deal volumes having fallen from USD2,848 billion in FY2011 to USD2,265 billion in FY2012.

Number of transactions by deal value

The energy and resources sectors continue to dominate public M&A in Australia, accounting for about 50% of transactions (by number).Consolidation in the coal sector accounted for a significant proportion of transaction volume, with total transaction volumes exceeding $20 billion. As coal sector consolidation nears an end, it remains to be seen whether energy and resources transactions will continue to dominate Australian public M&A activity in the future.

Private equity participation in public M&A activity also continued to increase in FY2012, with transaction numbers recovering to pre-2008 levels.

Success rates have continued to increase with 81% of announced public M&A transactions completing, up from 70% in FY2011.

The proportion of ‘hostile’ deals launched without initial target board support increased in FY2012 – 48% of all transactions were announced without target board support, up from 37% in FY2011. While initial recommendation by a target board remained a significant factor in success rates, success rates for both friendly and hostile transactions improved in FY2012.

Success rates in ‘hostile’ and friendly deals

Public competition for assets decreased, with only 5% of public M&A transactions in FY2012 involving a contest between rival bidders (down from about 15% in each of FY2010 and FY2011).

Foreign bidders

Overall, there was a moderate decrease in the level of inbound cross-border public M&A activity with bidders headquartered overseas being involved in 46% of transactions in FY2012, down from 51% in FY2011. Asia-based bidders accounted for an increased proportion of foreign bidders, with a relative decline in the number of bids originating in North America.

Origin of bidders

As in previous years, in FY2012 bidders in transactions exceeding $1 billion were predominantly based offshore, although the proportion of foreign bidders involved in such transactions dropped.

Origin of bidders in transactions over $1 billion

Foreign bidders were successful in 79% of transactions. Bidders based in China (including Hong Kong), in particular, had a successful year in executing Australian public M&A transactions, with the overall number of bids increasing and a success rate of 83% in FY2012.

Success rates for Chinese bidders

Deal structure

Cash only transactions continue to be more popular than ones involving a scrip component, with about 63% of transactions overall being cash-only and 72% of transactions over $1 billion being cash-only. Foreign bidders, in particular, favoured cash bids, with 81% of foreign bidders offering cash only in FY2012.

Debt funding was the main funding source in 49% of all deals with cash consideration in FY2012, up from 32% in FY 2011. This indicates a continuing willingness by financiers to extend credit for Australian assets.

Public M&A transactions remained highly conditional with about 95% of transactions in FY2012 being made subject to conditions.

A number of relatively high-profile transactions involving overseas regulatory approval conditions were the subject of lengthy delays while relevant overseas regulatory authorities conducted their review processes, and in some cases were unable to be consummated. In light of this experience, if a bidder requires that their bid be conditional on the bidder obtaining overseas regulatory approval, Australian boards are likely to seek greater certainty as to the status of the approval process before committing to the transaction.

Deal protection mechanisms, including no-shop/no talk provisions, break fees, lock-ups (eg, commitments by shareholders to accept a bid) and toe-holds (eg, acquisitions of pre-bid shareholdings) continued to play an important role in negotiated transactions.

Forms of deal protection in negotiated transactions