FOREIGN bidders are offering higher prices for Australian takeover targets than domestic bidders, with Chinese buyers offering the highest premiums.
Law firm Corrs Chambers Westgarth's recent review of mergers and acquisitions in 2011 also reveals that while not surprisingly the mining and metals sector was home to most activity, the biggest windfall when it came to premiums was in the software and services sector.
The report found the average premium paid by foreign bidders the difference between the final price and the share price at the time of the takeover announcement was 47.5 per cent. Predominantly, foreign bids were cash only, making up 90 per cent of the overseas offers. Australian bidders paid an average premium of 43.5 per cent, and 75 per cent of the offers involved scrip as all or part of the deal.
The report noted that Chinese bidders paid the largest average premiums (48 per cent) while bidders from the US and Britain paid an average 36 per cent, and bidders from south-east Asia paid an average premium of 28 per cent.
Chinese bidders are believed to pay above the odds to sweeten their bids, which are conditional on them getting approval for outbound foreign investment from the Chinese government.
The average deal value for foreign bidders was $1.1 billion, compared with $322 million for domestic deals, the report says.
But while the metals and mining sector accounted for nearly 41 per cent of all merger and aquisition activity, it did not generate higher premiums for resource stock. It attracted an average premium of 42 per cent well behind the "hot stocks" of software and services, which recorded 67.5 per cent. Software and services was closely followed by high premiums for real estate investment trusts and diversified financials.
One of the biggest premiums paid, albeit off a 5? base, was the 227 per cent premium for iSOFT Group by the Australian subsidiary of the US-owned Computer Sciences Corporation.
The US was the dominant investor in software and services, comprising 60 per cent of all foreign interest. China was the largest investor in mining and metals, accounting for 44 per cent of foreign investors.
The review found that private equity which accounted for seven of the 61 merger and acquisitions deals last year paid even higher premiums, averaging 65.8 per cent.
It was not active in the metals sector, but operated in real estate investment trusts, media, software and services, utilities and transportation. Private equity bidders had a success rate of 86 per cent while non-private equity bids were successful 85 per cent of the time.
The report noted the Foreign Investment Review Board did not block any deal announced during 2011.