Mergers at eight-year low
The downturn is a setback for investment banks, with the sector pinning its hopes on a recovery after several lean years of deal-making.
There was $US9.43 billion ($9.06 billion) of announced merger and acquisition activity in the first three months of the year, down from $US20.03 billion in the previous corresponding quarter, data collected by Bloomberg shows.
The last time mergers and acquisitions fell to such levels was in the second quarter of 2005.
While there were six separate deals worth more than $US1 billion each between January and March last year, deal values were down sharply this quarter. The biggest deal this year has been Genuine Parts' $US800 million acquisition of Exego Group.
"The only area where there's really been quite relentless activity has been financial services," the head of Wilson HTM's investment advisory team, Hugh Robertson, said. "The only other area is the small resources, who are saying, 'We've got to buy size to survive'. There isn't much and I don't necessarily see that changing hugely."
During the first quarter of 2012, the six blockbuster mergers and acquisitions were dominated by the mining sectors, including Rio Tinto, BHP and Gina Rinehart's Hancock Prospecting.
In contrast, the wholesale and distribution industry and diversified financial services sector were the top acquirers with a total of $US1.8 billion in deals from January to March, while the top targets were in retail auto parts and coal.
Mr Robertson said building and engineering services provider Norfolk Group's takeover troubles had sounded alarm bells for the rest of the industry.
Greater restrictions by the Australian Competition and Consumer Commission were also reducing the scope for larger takeovers.
"With the ACCC sitting on top of everything, the opportunity for blockbuster deals is very limited, so those days, to a degree I suspect, are pretty much over," he said.
Investment banking company Goldman Sachs topped the merger and acquisitions table, with five deals totalling $US884.1 million or about 10 per cent of the market.
ANZ and boutique corporate advisory company Flagstaff Partners were joint second, each with 5 per cent of the market. Last year's top deal maker for the first quarter, Rothschild, was not in the top 10 list for this year.
Last year Australian companies were involved in 1037 deals worth $US65.46 billion, a marked decline from 2007, in the peak of the equities boom. In that year, companies locked in $214.7 billion in mergers and acquisitions in 2267 deals.
The downturn in Australia contrasted with a pick-up in global merger and acquisition activity, which rose 2 per cent to $US596 billion in the March quarter from $US584.2 billion in the previous corresponding quarter, figures from financial researcher Dealogic showed.
In the Asia-Pacific region, excluding Japan, merger and acquisition activity in the first quarter was $US79.1 billion - the lowest since 2009.
Private equity remains a key player in Australian mergers and acquisitions, with several funds courting troubled sportswear group Billabong.
No big sharemarket listings are booked in for the next few months, although US mortgage insurer Genworth Financial is still eyeing a listing for its Australian arm.
Ongoing takeover activity includes Range River Gold's takeover bid for coalminer Firestone Energy, with an offer of one Range River share for every two Firestone shares.
Financial services provider The Trust Company remains the target of Equity Trustees, with a bid of 33 shares in Equity Trustees for every 100 Trust Company shares.
Elsewhere, insurance broker Steadfast has slated its sharemarket listing for the middle of the year.
Frequently Asked Questions about this Article…
Australian M&A activity fell to an eight-year low in the first quarter largely because resources deals dropped sharply. Announced merger and acquisition activity was US$9.43 billion in the first three months, down from US$20.03 billion in the same quarter a year earlier, bringing volumes to levels not seen since Q2 2005.
Financial services remained the most consistently active sector, while small resources companies were also buying to gain scale. By contrast, larger resource and mining deals slowed, which was a key reason overall deal values declined.
The largest deal mentioned for the quarter was Genuine Parts' US$800 million acquisition of Exego Group, making it the standout transaction in an otherwise quiet period for big deals.
Greater scrutiny from the Australian Competition and Consumer Commission (ACCC) is limiting the scope for large takeover deals. Industry commentators in the article said ACCC oversight has made blockbuster mergers much harder to achieve, and takeover troubles at companies such as Norfolk Group have also raised caution.
Goldman Sachs topped the Australian M&A adviser table with five deals totaling about US$884.1 million (roughly 10% of the market). ANZ and boutique advisory Flagstaff Partners were joint second, each with about 5% of the market. Notably, last year’s top first-quarter deal maker Rothschild did not appear in the top 10 this year.
Yes. Private equity continued to be an important buyer in Australia, with several funds reportedly courting troubled sportswear group Billabong, illustrating private equity’s ongoing role in the market.
The article notes there were no big sharemarket listings booked for the next few months, though US mortgage insurer Genworth Financial was still eyeing a listing for its Australian arm. Separately, insurance broker Steadfast had slated its sharemarket listing for the middle of the year.
Ongoing takeover activity highlighted in the article includes Range River Gold’s bid for coal miner Firestone Energy—offering one Range River share for every two Firestone shares—and Equity Trustees’ offer for The Trust Company, proposing 33 Equity Trustees shares for every 100 Trust Company shares.
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