20 Mar 2013

First movers to have THE REAL DEAL advantage in 2013

Sydney, 20 March 2013: Bidders who are first to market will have a key strategic advantage in getting mergers and acquisitions over the line in 2013, although the need for due diligence and desire for a target board recommendation means deals are likely to take longer to announce and complete.

These are some of the key predictions for M&A activity in Australia in 2013 contained in ‚ÄčTHE REAL DEAL 2013 edition, an annual Clayton Utz publication based on an in-depth analysis by the firm's M&A team of announced public company mergers and acquisitions in Australia during calendar year 2012, valued at over A$50 million.

Clayton Utz Corporate / M&A partners Karen Evans-Cullen and Jonathan Algar, the key authors of THE REAL DEAL 2013 edition, commented that bidders who were first to announce deals would continue to have a strategic advantage in a market in which securing internal support to publicly proceed with a transaction remained challenging. "In 2012 we saw that bidders who were prepared to brave the lack of market confidence were in most cases rewarded with a successful deal, especially if they reached agreement with the target and secured the support of target shareholders. In this environment, any potential second mover will need to factor in the possibility of a bidding war for the target in deciding whether to announce a competing bid, as well as being unable to dictate the timetable for the transaction," said Ms Evans-Cullen.

2012 was almost more notable for the deals which didn't happen, rather than those that did, Mr Algar said. "In THE REAL DEAL 2012 edition we identified the increasing use of bear hug proposals in place of hostile bids as a successful tactic for pressuring target boards to engage with a bidder that would not have otherwise been welcomed," he said. Bear hugs continued to be a popular tactic in 2012, but many did not lead to an announced deal. This demonstrates that bidders are not always either willing, or in some cases able, to convert a bear hug into a deal.

Other trends that are likely to shape M&A activity in 2013 include a heightened focus by bidders on acquisitions in the food / agribusiness sector, the likelihood of strategic mergers in sectors such as financial services, manufacturing, retail and media, and shareholder activism as a continuing driver of target boards having to engage with bidders.

Although 2012 was not a stellar year for M&A activity, with only 41 announced deals valued at over $50 million − down 31% on 2011 levels − Ms Evans-Cullen and Mr Algar said both bidders and targets could learn from some of the trends they saw emerge last year.

"For bidders, the two key factors which will lead to success for a deal are securing a pre-bid stake and securing a recommendation from the target board," said Mr Algar.

Similarly, a target board should use the desire bidders have for a target recommendation to its advantage during the pre-announcement negotiating process, as this may be their only opportunity to get an increase in the bid price. Ms Evans-Cullen said: "Where there is a lack of competitive tension in the M&A market, target boards cannot simply rely on a competing bidder to drive up a bid price. They need to find alternative ways to justify their valuation."

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.