Is M&A back in play?

There are reasons to hope for a pick-up in merger and acquisition, as well as IPO, activity in Australia this year after a horror 2012. But the list of possible deals far outweighs the probables.

The Australian M&A industry should see a modest but noticeable uptick in activity in 2013. But take a step back from that idea and you quickly realise it couldn’t get much worse than 2012.

Survey after survey consistently showed through the last year that the total value of deals was about half that of 2011, with volumes also well down. Perhaps the number 13 will prove to be luckier than 12.

There’s a growing sense that the sector most likely to feature as an M&A headliner is listed investment property.

The recent attention that Australand Property Group has been receiving from GPT Group, and perhaps Mirvac Group, is hoped to be the beginning of a resurgence for deals in this neglected space.

There have been whispers about what Stockland and even the rehabilitated Centro have on their horizons, but nothing has ever really come of it. Perhaps 2013 is the real comeback.

The first order of business though will be the GPT-Australand encounter, with the suitor saying it wants to talk. Mirvac hasn’t made its move, yet.

In financials, we know that the big four banks won’t get a deal done between them and the Bank of Queensland-Bendigo and Adelaide Bank, though still possible, has been speculated to death.

Macquarie Group’s $6 million investment in Yellow Brick Road, while modest, will be watched very closely. YBR is headed by the savvy Mark Bouris and watching him throw cheap Macquarie dollars at the Australian mortgage market will be fascinating.

What’s got some industry watchers quietly musing have been the smaller deals like IOOF’s takeover of Plan B Holdings, or the Crescent Capital Partners tilt at ClearView Wealth Management. It just shows the sector chugging along nicely.

Another sector you could add to the watchlist would be Aussie gold miners. It’s strange to think that we’re still talking about consolidation in the gold sector when Newcrest Mining merged with Lihir Gold back in mid-2010.

But high industry costs are helping push the local players along. Silver Lake and Integra Mining are moving through the merger process to create a $1 billion ASX-listed player, as are Cortona Resources and Unity Mining. Canada’s B2Gold Corp is also moving towards a merger with ASX-listed CGA Mining.

These deals are setting the tone for a sector that’s now dominated by Newcrest Mining. But a salivating prospect could lie in the form of a listing from AngloGold Ashanti’s Australian business.

Chief executive Mark Cutifani has publicly mused about the idea in recent months and the entry to the Australian market of such a major player in a period of consolidation could change the dynamics significantly.

In infrastructure, many are expecting a lot more activity. In 2012, we did get gas pipeline investor APA Group taking out Hastings Diversified Utilities Fund with a bid valuing the entire company at $2.2 billion. Meanwhile, The Future Fund is in the process of effectively taking out Australian Infrastructure Fund and it’s airport assets for $2 billion.

What’s confounded many onlookers is why no one has had a crack at the $9 billion beast that is Transurban, which did become more expensive in 2012, but not out of sight. For particularly pension funds interested in steady infrastructure returns, the ASX-listed tollroad operator is about as good as they come.

Plus there are some privatisations from the state governments that those Canadian majors will be circling.

GrainCorp is top of the list of takeover targets as the most recent prominent player to receive a full – though conditional – offer. The east coast grains handler got through its annual general meeting without any hassles, having knocked back giant US suitor Archer Daniels Midland at $2.7 billion, then again at $2.8 billion.

But the predator has 19.9 per cent of the register and looks pretty firmly parked. It doesn’t matter if ADM is being active in its pursuit or not, its presence on the register will colour the coverage of GrainCorp until something is resolved.

The agribusiness and food sectors are expected to be centre stage in the early parts of next year. A bid for Coca-Cola Amatil, Goodman Fielder or Treasury Wine Estates wouldn’t be a surprise at all. We should also expect a continuation of the debate about Chinese ownership of Australian agricultural properties.

Arrium is another major company that everyone expects will get some more attention in 2013. The steelmaker knocked back a rather simply named Asian consortium called Steelmakers Australia in late October, despite the suitor bumping up its offer to 88 cents from 75 cents, or $1.2 billion.

The Australian steelmaker’s $2 billion debt burden is it’s biggest disadvantage. But the share price has actually rallied into mid-December to be trading at 87 cents a share, after a brief dip in the wake of the rejection.

It just goes to show that chairman Peter Smedley was right to tell Steelmakers Australia to go away at 88 cents. He’ll probably get another offer to work with. In the meantime, he’s got iron ore production targets to meet.

Speaking of which, Fortescue Metals Group will get a lot of attention as it moves towards selling a stake in its port and rail assets, which are housed in The Pilbara Infrastructure.

When it comes to sharemarket floats, this year we saw a terrible drop-off from an already low base, particularly as turbulent equity markets derailed planned IPOs.

This is probably the best place to start when looking into 2013. What deals should have happened in 2012, but didn’t because the market was just too dicey?

The two big ones are electricity provider TRUenergy and mortgage insurer Genworth Financial.

The former’s Hong Kong parent CLP Holdings peppered the market with glimpses of its plan to launch a $3 billion float of about 40 per cent of the business. It was hoped that such a megafloat, the largest for the ASX since QR National, would encourage other hopefuls to dive in.

The latter’s US parent was foiled by a combination of troublesome markets and a deterioration in its Australian business thanks to the Queensland floods. Again, Genworth was looking towards a 40 per cent float. Perhaps it’ll have better luck in 2013.

CatchoftheDay has also raised the prospect of a listing. Nine Entertainment is destined for a return to the ASX now that the restructure has been locked in, but probably not until 2014.

While we’re talking media, Ten Network is looking terribly vulnerable to a takeover bid, particularly from private equity. The problem is that any standard proposal would require billionaires Lachlan Murdoch, James Packer, Gina Rinehart and Bruce Gordon to lock in big losses on their stakes. That’s a bit of a stretch.

Rinehart is also involved with Fairfax Media, having engaged in a bruising battle with chairman Roger Corbett this year. Fairfax has just offloaded its last remaining stake in New Zealand website Trade Me, which reduces the chances of a play for Fairfax on the basis of chopping the company up.

Then there’s also the slowly growing stake of media billionaire Kerry Stokes in Seven West Media. It’ll be interesting to see if Stokes has a go at taking the company private. Whether he does or not, there will be talk.

Like almost the entire Australian media industry, Billabong International is also in trouble and with a lowball takeover proposal from director Paul Naude, backed by US private equity giant Sycamore Partners on the table, the company’s shareholders might just want out. Pacific Brands, which got some attention this year, still looks like a target to many onlookers.

Some are still thinking of Myer and David Jones as potential targets. Remember the farcical ‘bid’ for DJs from EB Private Equity. While the bid was a joke, the rationale for a bid was anything but.

Of the other players to keep an eye on, Telstra Corporation would be at the top of the list. Chief executive David Thodey, flush with NBN-deal cash, has made it abundantly clear that he’s interested in assets across Asia. Given that Telstra can’t buy a hot dog stand in Australia without the consumer watchdog getting nervous, international acquisitions make so much more sense.

Rio Tinto is still sitting on its Pacific Aluminium business more than a year after quarantining it. Rio and rival BHP Billiton are jettisoning assets that aren’t absolutely necessary in the post-boom era and it’s really feeling like Rio’s time in aluminium, at least Pacific Aluminium, should be coming to an end.

And finally, a story that gets a lot of people in the resources industry very excited. Woodside Petroleum still has UK giant Royal Dutch Shell sitting on its register. If Shell sells out (the magic price is thought to be $35 a share) Woodside could quickly become a target again.

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