Directions in Public Mergers & Acquisitions 2018

Welcome to the fifth edition of MinterEllison's Directions in Public Mergers & Acquisitions report, part of our annual Deals Trilogy.

We are pleased to present our observations on trends in public mergers and acquisitions (M&A) in FY18 and our predictions for FY19. These are based on our analysis of ASX market data for the financial year ended 30 June 2018. Consistent with our approach last year, the threshold we set for inclusion in this report is announced deals with a value of $A50 million or more.

37 deals met this threshold in FY18. The majority of activity was in the mid-market, which we define as deals valued between $A50 million and $A500 million. 23 of the 37 deals in our sample qualified as mid-market. By contrast, there were only 7 ‘mega deals’, which we define as deals valued at more than $A1 billion.

Our report:

identifies 8 key M&A trends in FY18;
discusses the role played by key Australian regulators;
makes 7 predictions for FY19; and provides a list of sectors to watch.

MinterEllison played a central role advising on many of the M&A transactions profiled in this report. We trust that our report provides some interesting perspectives and is a useful resource for you.

FY18 at a glance

7 predictions for FY2019

1. Opportunism will remain a key driver Navigation Show below Hide below

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.

2. Growth by acquisition will continue Navigation Show below Hide below

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

3. Foreign outbound Japanese investment will continue Navigation Show below Hide below

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.

4. Private equity will continue to be a major player Navigation Show below Hide below

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

5. Requests for an upfront deposit will increase Navigation Show below Hide below

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.

6. Reverse break fees will be used more often in friendly deals Navigation Show below Hide below

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.

7. Shareholder activism will continue Navigation Show below Hide below

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.