Directions in Public Mergers & Acquisitions 2018

Bidders will continue to move quickly to take advantage of quality targets whose share prices are depressed or languishing. Hostile bids will remain popular despite their execution risks.

Achieving organic growth is likely to remain difficult in many mature industries.

Over the next 12 months, we believe Japanese bidders will continue their strong run in Australian public M&A deals. This activity is likely to centre on mid-market transactions, and in sectors such as robotics and IT, where Japanese companies can add value through their unique strengths.

It will continue to drive bids for ASX-listed companies.

Australian targets will increasingly request an upfront deposit from overseas bidders as security for the payment by the bidder of any reverse break fee. If the deal successfully completes, the upfront deposit forms part of the purchase price.

These fees are potentially payable by the bidder to the target if the deal fails. We expect bidders will increasingly be prepared to agree to reverse break fees that are substantially higher than any break fee potentially payable by the target to the bidder (for example, in the event of a board changing its recommendation). Larger reverse break fees are likely to become an important negotiation mechanism, particularly where a bidder is a foreign bidder or latecomer to an auction for control.

This is likely where industry competitors look to torpedo or otherwise influence deals and where institutional investors seek to extract the maximum possible price from acquirers.