Top M&A trends in 2011 and 2012
David Bushby, BRR Media
Karen Evans-Cullen, Partner
Jonathan Algar, Partner
Today I'm joined by Karen Evans-Cullen and Jonathan Algar, both partners in the Mergers & Acquisitions team at Clayton Utz in Sydney. They are the key authors behind the firm's 2012 edition of the M&A Deal Trends and Developments Report which is hot off the press today. Welcome to BRR Media, Karen and Jonathan. Karen, just kicking off, looking back to 2011 was it a good year for M&A?
I think you can answer that question either yes or no. It was certainly a good year in terms of the number of deals. There was a 23% increase from the number of deals we saw in 2010 but the deal value was down by almost 20%. It was also a good year in terms of success rate – 86% of the deals which completed during the year were successful.
In terms of the trend for 2011, what did you see?
The main things that we saw were some of the obvious ones. To start off, the energy and resources deals continue to dominate the market and they accounted for half the deals during the year. We also saw that foreign bidders dominated the market too and they accounted for more than 60% of the deals in 2011.
Looking at some of the structural trends we saw that bear hug proposals became a very common way of starting a transaction. A bear hug is an unsolicited proposal made by a bidder to a target which is then publically announced before any deal is agreed and in 2011 we saw a third of all transactions started this way. Our survey we think demonstrates that the bear hug has become the precursor to, if not the replacement for, a hostile takeover bid.
And then finally another interesting trend was the fact that three-quarters of bidders started with a previous stake in the target which we think reflects two things: firstly, a trend for minority take-outs, and secondly the desire to increase deal certainty by acquiring a blocking stake.
And Karen, as you mentioned it was energy resources that was the dominant sector for deals, but out of interest what was the second most active sector?
Energy and resources is really two sectors combined, with metal and mining and oil and gas industries. The third most popular sector after that was financial services, although I think it was only about 10% of deals that fell within that sector.
And looking at particular deal structure and mechanics, what were your observations in the report?
Firstly in terms of general deal structure, takeovers and schemes of arrangement were equally as popular and they were also equally successful so it didn't matter which structure you used as to the outcome that you got.
In terms of the consideration that was offered cash was clearly king in 2011; nearly two thirds of all the deals offered only cash considerations.
We also saw that the volatility in the market as well as the uncertainty in the economy led to bidders seeking to protect themselves with a high degree of conditionality in their bids.
Finally another interesting trend was joint bids involving existing target shareholders. They became used as an increasingly common way for people to get their hands on strategic assets.
And Jonathan Algar, just to bring you in here, was there any deals that particularly struck you in term of how they were structured and executed?
David, the thing that struck me particularly was the high number of joint bids that occurred in 2011. I think this follows on from the success of deals like the AMP/AXA joint proposal for AXA Asia Pacific and the success of that transaction. So looking back at 2011 about 12% of deals were structured as joint bids compared to 4% in 2010.
When you look at those joint bids, as we did to our survey, all of them involved a joint bidder with a significant stake in the target and this shows that significant shareholders were teaming with others to take companies private for their mutual benefit.
Five out of seven of the joint bids in this case were structured as schemes of arrangements as well which is also an interesting trend and I think this is because schemes gave those joint bidders more flexibility in structuring and essentially in all or nothing shareholder votes which blessed both the acquisition of the target and the joint bid structure, however they decided to structure it.
And just finally Jonathan, obviously time is flying and we're already into March this year. What have you seen so far in 2012 and what can we expect for the remainder of the year?
Well private equity is becoming increasingly active in the public M&A arena, we're seeing KKR's proposal for Pacific Brands and TPG's proposal for Billabong and obviously we have the ongoing PEP proposal in respect to Spotless. I think all of these proposals show how important due diligence and board recommendations are to private equity bidders because in all of those cases, obviously, both of those elements are being sought by PE.
We're also seeing the ACCC seeming to act on the need for this real world assessment that was called for in the Federal Court decision in Metcash, and we're also seeing the ACCC taking their time, as it needs to take the time, to do that assessment. An example of this approach is I think the recently announced market soundings on undertakings that have been offered by Foxtel in the Austar bid.
Fantastic and we'll certainly look forward to see how the rest of the year pans out for the M&A landscape and I would like to thank you for your time today Karen and Jonathan.
That was Karen Evans-Cullen and Jonathan Algar, both partners in the Mergers and Acquisitions team at Clayton Utz in Sydney and listeners if you have any questions for either Karen or Jonathan about this interview please send a message on [email protected] or [email protected].