Australia’s anaemic mergers and acquisitions market may be set for a revival, Deutsche Bank managing director Scott Mailer says.
While admitting he may be more hopeful than confident, Mailer detects mutterings about deals from corporate boardrooms, especially among mining, mining services and building construction companies.
M&A volumes have dropped off a cliff this year. Having been in decline since a sizable $53.14 billion worth of deals in the fourth quarter of 2010, M&A activity slumped to $7.1 billion in the first quarter this year and is a little better at $19.18 billion to date in the third quarter, according to Bloomberg data.
Boards are under pressure to generate wealth for shareholders, says Mailer. If a clear and strategic acquisition opportunity arises, especially with the likelihood of a new business-friendly government, deals may start to get done, he says.
“The ingredients are there,” says Mailer. “It comes down to the merits of the deal.”
Companies in the mining space may be under a different kind of merger pressure. Their balance sheets may be groaning under the weight of increasing financing costs as the value of assets slump, forcing some companies into a reluctant embrace.
Mailer's colleague, Mark Wilson, co-head of research at Deutsche Bank in Australia, observes companies are not rushing into transactions just yet.
“I don’t anticipate a change in their very cautious thought process,” says Wilson.
CEOs and chief financial officers will want to see how a coalition government, if elected, manages the reigns of power before committing to a transformative deal. And companies are looking for signs of a pick up in the domestic and international economy to justify a takeover with bankable earnings prospects.
As for initial public offerings, Wilson sees little prospects of more activity. In 2013 there have been 27 Australian IPOs announced, 23 priced and three withdrawn, according to Bloomberg data. In 2012 there were 56 IPOs announced, 47 priced and nine withdrawn.