The agribusiness, food and beverage and property sectors will remain some of the 'hottest' sectors for transactions this year, after the long, cold winter that was 2013.
Corrs Chambers Westgarth's
M&A Year in Review predicts that the sectors that were 2013's saviours will continue to dominate the league tables this calendar year.
They include agribusiness, food and beverage and property sectors, while Corrs has tipped an uptick in private equity deals and increased interest from Chinese private investors.
The predictions came in tandem with lamentations; Corrs revealed what many lawyers already knew, that 2013 was the quietest year in public M&A in almost a decade.
The firm blamed the unimpressive deal volumes on the slowdown in the resources sector, political uncertainty and lower than expected growth in inbound Chinese M&A activity.
Resources public M&A volume was the hardest hit category last year, down 57% from 2012 levels.
“2013 was an undoubtedly quiet and challenging year for public M&A,” said Corrs Chambers Westgarth partner Sandy Mak.
“However, we saw signs of life towards the end of the year as deal activity improved, with 70% of deals announced in the latter half of 2013.”
Corrs partners feel the most important element for a 2014 rebound is a critical boost to confidence, suggesting that without this the market may remain subdued.
“In theory the conditions are there for the return of a thriving M&A market," Mak said.
She pointed to strong equity markets, cash interest rates at 50-year lows, the 15% dip in the Australian dollar over 12 months and pent-up acquisition demand.
“A much needed boost in confidence is critical to the deal flow returning," Mak said.
"In 2013, we saw a significant decrease in foreign investment in public deals. One obvious catalyst for increased M&A activity in 2014 would be a pick-up in inbound investment.
However, the implications of recent decisions on foreign investment have created some uncertainty."
Mills Oakley is one firm that is confident the M&A market is picking up. The firm experienced its best December and January for many years this year, and completed in excess of $500m in deals in the first half of the 2013/14 financial year. There are expectations it will advise on $1bn in deals this financial year.
“There’s definitely been a shift in sentiment,” Mills Oakley Lawyers corporate advisory partner Dan Livingston says.
“We feel the market has finally moved beyond the ‘tyre kicking’ phase and more deals are being seriously considered. We are also seeing significantly more activity in the capital markets/IPO areas.”
Livingston says increased business confidence has been the key driver for better fortunes in late 2013 and early 2014.
“Clearly the Australian economy still has its challenges, with productivity and competitiveness ongoing issues, but ultimately I think there has been an improvement in business confidence brought on by the Federal election, lower interest rates and some positive data globally,” Livingston says.
Firms below the top tier that are clear on their value proposition will also be key beneficiaries of the upturn in the market, Livingston says.
“Clients wanting an alternative to top-tier firms have been seeking us out, so our market positioning has been a key impetus for winning work,” he says. “Particularly pleasing is the boost we’ve experienced in repeat work and existing client referrals.”
Deal flow is significantly higher than from the same time in 2013, with a typically quiet December and January last year followed by a ‘lag’ well into February.
“This year we are firing on all cylinders. The work flow barely slowed over Christmas and the first quarter of this year has been hectic. We expect the current pace to continue.”
Livingston says Mills Oakley has been especially busy in mining and financial services industry consolidation, aged care, IT and IP-based industries.
“We support analysis that mining will continue to punch above its weight in its contribution to GDP for the foreseeable future,” he says. “As such, we believe this is one of the areas in which we are well placed to leverage market opportunities in 2014.”
