20 Mar 2013

M&A: Lessons for targets and outlook for 2013

Partner Karen Evans-Cullen talks to BRR Media on the lessons for target companies arising from M&A activity in 2012 and the outlook for 2013.

M&A: Lessons for targets and outlook for 2013
David Bushby, BRR Media
Karen Evans-Cullen, Partner, Clayton Utz

Karen Evans-Cullen

Well last year we saw a significant decline in M&A activity with only 41 deals in the year that had a value over $50 million. So the main lessons we found for targets operating in this environment was firstly that they couldn't rely on competitive tension to drive up their bid price, mainly because there was none.

Secondly we also saw that target recommendations were the single biggest influencing factor in determining the success of a deal. And so targets had to use this negotiating chip really wisely when they were negotiating with the bidders.

We also saw a lot of conservatism in the market and bidders were demanding high levels of conditionality for their deals even where they had agreed them with the target.

And then we saw that deal times increased significantly again this year. So when targets were operating in this market they really had to focus on maximising deal certainty for their shareholders, and they also needed to make sure that their business could withstand a prolonged period of uncertainty as they played out the deal.

David Bushby

Karen, given the stellar run in global equities so far this year, will those lessons hold true for 2013?

Karen Evans-Cullen

Well I think with the markets the way they are we may well see that a number of the bid tactics which have been really successful in the past couple of years become much less effective.

If the gap between share market prices and fundamental valuations closes, then we'll see that target boards are much more able to resist the pressure from bear hugs and also shareholder activism. And if that happens then I think we'll see our M&A market turn from the sort of opportunistic deals that we've seen in the past to more strategic deal-making opportunities.

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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.