Local companies driving Australian M&A markets
(22 June 2004 – Australia) Merger & acquisitions activity in Australia is booming again after a generally lacklustre four years and it is local companies that are driving the majority of transactions rather than the deal makers inside investment banks.
East & Partners, which released its first Investment Banking Performance in Australia report this week, estimates there are $11billion worth of M&A deals in the pipeline - excluding Telstra's T3 - as further consolidation takes place among utilities, state sector assets, telecommunications and the retail sector.
Already in 2004 there have been three mammoth deals involving Australian companies [see Appendix for Top 20 M&A deals so far in 2004]. The largest deal in the first quarter was Alinta’s $US.1.36 billion bid for the gas infrastructure and power generation assets of Duke Energy. Next came the sale of Carter Holt Harvey’s Australian and New Zealand tissue operations, which were valued at $US657.09 million.
Since then an even bigger deal has taken place with Westfield Group's three-way A$18 billion merger of Westfield Holdings, Westfield Trust and Westfield America Trust.
A big difference with the present tranche of M&A transactions is that it involves fewer trans-border deals than has historically been the case. Instead of international companies coming into the Australian market to make acquisitions, existing domestic players are fuelling the high level of activity by focussing inside the local economy.
There are several reasons for the resurgent M&A markets: US companies have taken advantage of the stronger Australian dollar to dispose of local assets while their value is high; the cyclical commodities sectors are currently experiencing a great deal of global demand, much of which is emanating from Asia; and Australian companies are looking outside the domestic market once more while the dollar and equities markets remain robust. Another factor is that Australian companies have greater access to local and international capital than ever before.
The positive aspect for the local market is that the deals in the pipeline are based on strong business rationales for acquiring or divesting businesses and assets rather than being based on more synthetic or opportunistic grounds.
In fact, historically it has been rare to see a big transaction adding real value to the acquirer's shareholders in the short to medium term. More recently, however, businesses have begun to approach these transactions much more rigorously with shareholder value now a real imperative.
This in turn has shifted the way companies interact with their advisers and deal executioners, with the corporate rather than the investment banker conceptualising and framing these transactions. The deal makers are still pitching but most banks now operate in a more reactive and responsive manner, driven by their clients' deal initiatives.
Several flat years in the M&A markets have pushed investment banks to become more relationship orientated than they were in earlier, buoyant times. During the market's recent lean period, investment banks worked harder to stay engaged with their client base by, for example, providing free or low cost research and analysis.
In addition, investment banks have had to become much more innovative and value conscious in their client relationships because the deal flow has simply not been there. Easy pickings in an M&A sense have well and truly disappeared so banks have refocused on identifying and delivering real shareholder value to get transactions over the line.
Businesses and corporations have also raised the bar over the past few years, expanding their list of needs and encouraging their investment banks to grow their competence and expertise levels, especially in industry-based capabilities.
This is evident in East & Partners' research which shows that both large and mid-corporate companies have experienced significant improvements in their investment banks' M&A and corporate advisory performances over the past 12 months.
Improved interaction has led to a closer relationship between investment banks and their clients, and has created an environment where companies are more willing to bring advisers in at an earlier stage of the process and at a more strategic level than previously. Banks are now partners rather than service providers. UK based Investec and BNP Paribas are examples of international banks that have attained a high level of customer satisfaction by working closely with their Australian client base. Australia’s commercial banks, on the other hand, continue to struggle to provide high quality M&A services to the Top 500 corporate sector.
Banks that have succeeded in leading their business with an advisory-based approach with their clients are often the ones being rewarded with M&A transactions. A notable exception to this is Macquarie Bank which has a relatively low advisory to M&A transaction ratio. Although the relationship model is occurring across M&A markets globally, the size of Australia's market and its relatively low transaction volume/high dollar value business stream makes this approach to market more critical for the banks.
Already in 2004 there have been three mammoth deals involving Australian companies [see Appendix for Top 20 M&A deals so far in 2004]. The largest deal in the first quarter was Alinta’s $US.1.36 billion bid for the gas infrastructure and power generation assets of Duke Energy. Next came the sale of Carter Holt Harvey’s Australian and New Zealand tissue operations, which were valued at $US657.09 million.
Since then an even bigger deal has taken place with Westfield Group's three-way A$18 billion merger of Westfield Holdings, Westfield Trust and Westfield America Trust.
A big difference with the present tranche of M&A transactions is that it involves fewer trans-border deals than has historically been the case. Instead of international companies coming into the Australian market to make acquisitions, existing domestic players are fuelling the high level of activity by focussing inside the local economy.
There are several reasons for the resurgent M&A markets: US companies have taken advantage of the stronger Australian dollar to dispose of local assets while their value is high; the cyclical commodities sectors are currently experiencing a great deal of global demand, much of which is emanating from Asia; and Australian companies are looking outside the domestic market once more while the dollar and equities markets remain robust. Another factor is that Australian companies have greater access to local and international capital than ever before.
The positive aspect for the local market is that the deals in the pipeline are based on strong business rationales for acquiring or divesting businesses and assets rather than being based on more synthetic or opportunistic grounds.
In fact, historically it has been rare to see a big transaction adding real value to the acquirer's shareholders in the short to medium term. More recently, however, businesses have begun to approach these transactions much more rigorously with shareholder value now a real imperative.
This in turn has shifted the way companies interact with their advisers and deal executioners, with the corporate rather than the investment banker conceptualising and framing these transactions. The deal makers are still pitching but most banks now operate in a more reactive and responsive manner, driven by their clients' deal initiatives.
Several flat years in the M&A markets have pushed investment banks to become more relationship orientated than they were in earlier, buoyant times. During the market's recent lean period, investment banks worked harder to stay engaged with their client base by, for example, providing free or low cost research and analysis.
In addition, investment banks have had to become much more innovative and value conscious in their client relationships because the deal flow has simply not been there. Easy pickings in an M&A sense have well and truly disappeared so banks have refocused on identifying and delivering real shareholder value to get transactions over the line.
Businesses and corporations have also raised the bar over the past few years, expanding their list of needs and encouraging their investment banks to grow their competence and expertise levels, especially in industry-based capabilities.
This is evident in East & Partners' research which shows that both large and mid-corporate companies have experienced significant improvements in their investment banks' M&A and corporate advisory performances over the past 12 months.
Improved interaction has led to a closer relationship between investment banks and their clients, and has created an environment where companies are more willing to bring advisers in at an earlier stage of the process and at a more strategic level than previously. Banks are now partners rather than service providers. UK based Investec and BNP Paribas are examples of international banks that have attained a high level of customer satisfaction by working closely with their Australian client base. Australia’s commercial banks, on the other hand, continue to struggle to provide high quality M&A services to the Top 500 corporate sector.
Banks that have succeeded in leading their business with an advisory-based approach with their clients are often the ones being rewarded with M&A transactions. A notable exception to this is Macquarie Bank which has a relatively low advisory to M&A transaction ratio. Although the relationship model is occurring across M&A markets globally, the size of Australia's market and its relatively low transaction volume/high dollar value business stream makes this approach to market more critical for the banks.
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