AFTER yielding its biggest brewer, sugar refiner, wheat seller and pulverised coal exporter to foreign acquirers in the past two years, Australia is poised for an increase in takeovers overseas as companies seize on a strong currency, according to Barclays.
The value of purchases abroad by Australian companies might match that of inbound deals next year, said Daniel Janes, the head of mergers and acquisitions for Australia at Barclays Capital. That has not happened since 2007.
"The core theme for 2012 is rebalancing," said Mr Janes, whose company helped Canada's Agrium buy local wheat exporter AWB last year. "One of the parts will be Australian champions taking their opportunities on the global stage."
Australia's natural resources, healthcare, consumer and agricultural companies operate in global industries and are encouraged by a favourable exchange rate to scout the world for assets, Mr Janes said. The Australian dollar has gained 54 per cent since October 2008.
"The exchange rate makes it more attractive to buy rather than sell, as long as the sectors are flourishing," said Ron Masulis, a finance professor at the Australian School of Business at the University of New South Wales. "But it's wise for any potential acquirer to be a bit gun-shy, especially as they move further away from their base."
SABMiller, based in London, has bought Foster's Group and St Louis-based Peabody is buying Macarthur Coal.
Those acquisitions were among the $US72 billion ($A70 billion) of inbound purchases announced this year. That's more than double the $28 billion of acquisitions by Australian companies, which included the $US12.1 billion takeover by BHP Billiton of Petrohawk Energy Corp in Houston.
Such "elephant deals" had reinforced confidence in takeovers among Australian boards, Mr Janes said.
The gap between the price companies are seeking for assets and what buyers were prepared to pay narrowed in the second half and more sales were planned for next quarter, Mr Janes said.
The value of takeovers involving Australian companies is $US132 billion so far this year, compared with $US148 billion for all of last year.
Not all Australian companies have enjoyed success overseas. Centro Properties Group this month won approval to convert borrowings into equity after a debt-fuelled $US9 billion US buying spree between 2006 and 2007 backfired.
And Treasury Wine Estates cost Foster's at least $US8 billion to build through acquisitions such as Beringer Wine Estates in 2000. Treasury was spun off in May and now has a market value of $A2.5 billion.
Mr Janes expects private equity firms to buy and sell more assets next year as credit improves. They were likely to target healthcare and consumer-related industries, and those offering services to the mining industry, he said.
Frequently Asked Questions about this Article…
Why is Australia poised to increase overseas takeovers?
Barclays and its M&A head in Australia, Daniel Janes, say a 'rebalancing' is under way: Australian companies — especially in resources, healthcare, consumer and agriculture — are using a stronger Australian dollar and solid sector performance to buy assets overseas, and outbound deal values could match inbound deals next year.
How does the strong Australian dollar affect takeover activity?
A higher Australian dollar makes it cheaper for local firms to buy foreign assets. The article notes the AUD had gained about 54% since October 2008, which encourages Australian buyers to scout overseas targets rather than sell domestically.
Which sectors are most likely to pursue overseas acquisitions?
The story highlights natural resources, healthcare, consumer and agricultural companies as active cross‑border buyers, and it also mentions firms offering services to the mining industry as likely targets for private equity activity.
What big inbound takeover examples were mentioned that affect the market outlook?
The article cites SABMiller (based in London) buying Foster's Group and St Louis‑based Peabody buying Macarthur Coal. Those 'elephant deals' contributed to roughly US$72 billion (A$70 billion) of inbound purchases announced that year.
How active have Australian companies been in acquisitions this year?
According to the article, Australian companies announced about US$28 billion of acquisitions (including BHP Billiton's US$12.1 billion takeover of Petrohawk Energy), and the total value of takeovers involving Australian companies was about US$132 billion so far that year.
What risks should everyday investors be aware of when companies expand overseas?
The article warns about acquisition risks: some deals have backfired — Centro Properties had a debt‑fuelled buying spree that failed and Treasury Wine Estates spent heavily on past acquisitions — so investors should watch leverage, integration risk and whether buying prices are realistic.
What role are private equity firms expected to play in the takeover market?
Daniel Janes expects private equity to become more active as credit conditions improve, buying and selling assets — particularly in healthcare, consumer sectors and firms that service the mining industry.
How might takeover market dynamics change in the near term?
The article notes the gap between sellers' price expectations and buyers' willingness to pay narrowed in the second half of the year, with more sales planned in the next quarter. Barclays suggests outbound deal flow from Australian companies could rise to match inbound activity, reflecting a market 'rebalancing.'
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