While the number of deals completed was slightly down on 2015, mergers and acquisitions had a positive year in 2016. Jeremy Blackshaw and Con Boulougouris, M&A partners said that both public and private M&A were reasonably strong, across a wide range of sectors.

“We’re quietly confident about M&A in 2017. Many of the signs are good. Debt remains cheap and many private equity funds have closed off new funding rounds. Equity capital markets have supported a number of raisings to fund M&A and, most importantly, there is an appetite for deals,” Mr Blackshaw said.

For 2017, MinterEllison M&A experts predict momentum will steadily improve, driven by strategic growth objectives. They gave ten key predictions for the sector next year.

Bidder Side Predictions

1. Bidders driven to grow by acquisition will continue to do so in 2017 - irrespective of immediate market conditions

Volatility is the new normal. Strategic bidders recognise this and will look through it. Accordingly, in spite of market-moving events (such as those seen in 2016 like Brexit and the election of Donald Trump as US President), strategic imperatives will continue to have cut through.

Hitachi's bid for Bradken was cited as an example by Mr Boulougouris. Organic growth remains difficult to achieve. This is also a factor that will drive further M&A activity in 2017.

2. Bidders taking advantage of depressed share prices will be a key M&A driver

In 2017, we will see further opportunistically timed offers with volatility and uncertainty as enablers of M&A activity. Opportunism will continue to embolden bidders.

Mr Blackshaw noted that the CIMIC bid for UGL reflected this trend.

3. Private equity will continue to bid for ASX listed companies

The renaissance of Private Equity as a deal driver will continue next year. Many of the larger players have closed new funds and are "cashed up and ready to go". Debt financing remains cheap and PE will continue to gear into acquisitions.

Examples from 2016 included Patties Foods and SAI Global, with MinterEllison acting on both matters.

4. Complex landscape for outbound Chinese investment

As the effects of changes regulating foreign government approvals play out, the landscape for outbound Chinese investment will become more complicated.

Thankfully, the story isn’t only about Chinese acquisitions. The US, Europe, and Japan will all continue to be active inbound investors in the Australian market. The expected strengthening in the US economy is expected to have a significant impact on Australian M&A.

Target Perspective

5. Directors will be pragmatic when assessing takeovers

While in the relatively recent past we have seen Boards prepared to dig in to fight a bid, now we're seeing them more alive to the consequences of missing out. Directors are more realistic about the risks facing their business.

6. Target Boards won’t be afraid to say NO

Although target Boards will be pragmatic, they won't be afraid to reject an offer if they think it is substantially underestimating the company's value and not offering an adequate control premium.

Mr Boulougouris said ALS’s rejection of the Advent proposal illustrated this trend.

Shareholder Influence

7. More institutional shareholder activity

Institutional shareholders will continue to take activist steps to improve terms or reject bids.

We will continue to see increased activism and pressure from institutional shareholders across the board, including executive remuneration report strikes as a consequence of performance-based issues.

8. More companies will use capital raisings to fund strategic acquisitions

On the buy side, companies will continue to be prepared to ask shareholders to fund M&A through capital raisings, with Vocus and Mayne Pharma as key examples, said Mr Boulougouris.

Broader Market Perspective

9. Regulatory environment will be increasingly complex

FIRB approvals have become significantly more complex and difficult to navigate. Approvals now regularly include tax conditions. ACCC considerations are increasing affecting deals. For 2017, there will be a heightened focus on understanding the complexities and demands of a changing regulatory environment and its impact on M&A transactions.

Not only FIRB and the ACCC but also ASIC and the ATO will be front and centre. Locally, State regulators will play a bigger role.

10. Five key hot M&A sector predictions

MinterEllison predicts that there will be robust activity in at least five key areas in 2017:

• health and aged care
• food and agribusiness
• financial services (including loan portfolio sales and insurance mergers)
• mining and mining services
• Government asset recycling won't slow down while local and offshore pension funds continue to drive demand for the right assets.