M&A: Lessons for bidders and outlook for 2013
David Bushby, BRR Media
Jonathan Algar, Partner, Clayton Utz
Last year bidders were few and far between in our market, with only 41 deals over $50 million in the public M&A space. Bear hug approaches, which were essentially unsolicited conditional approaches that are subject to due diligence, were again very popular last year, however they were not necessarily resulting in agreed transactions after the approach had been announced, as we saw in Pacific Brands, Billabong and Arrium.
The deals that did successfully complete that had a bear hug approach as a pre-cursor however had bidders engaged with targets and target shareholders for a protracted period of time. So bidders need to be ready for protracted processes, long-term engagement and ultimately quite a lot of time before they're getting to an agreed transaction.
The second lesson we saw for bidders last year was essentially in a circumstance where the bidder is the first mover. They were having a distinct advantage, particularly given the lack of appetite from other competing bidders to engage in a process where one bidder had already started, managed to secure a pre-bid stake, and also managed to secure a board recommendation and exclusivity arrangements, albeit subject to superior proposals as is usually the case in those transactions. So the bidders who were the first movers had a distinct advantage and, provided they had their bear hug plan and their strategy of engagement right, they were getting to a successfully completed transaction.
And then finally in respect of the all-important engagement with target shareholders there was no magic premium that one had to offer last year. What we saw last year is premiums come down from around 50% where they were in 2011 to a more realistic 37% last year, but nonetheless we saw a very wide range of premiums being offered. The key really to success in those arrangements was engagement with the larger target shareholders who were key to the success in getting the deal premium that was right for the transaction.
Jonathan, with global share indices near record highs this year, do you see bidders coming off the sidelines in 2013?
We're certainly seeing that already, not necessarily in announced transactions, but in the pipeline of transactions that we are working on. So bidders are resuming their analysis of M&A transactions and are more confident at this stage. What we need to see I think is more of a sustained uptake in the rally, and if that happens I believe that we will see increased deal volumes and particularly more scrip-based transactions as share markets have proved.