Dealmakers Say Australian M&A Rebounding From Virus Slump

Mergers and acquisitions in Australia and New Zealand are set to return in force after months of coronavirus pandemic-induced uncertainty sent activity into a tailspin.

Deal terms tied to key metrics and easier access to funding are two factors that are helping assuage concerns that dogged transactions in the first six months of the year, dealmakers told Bloomberg’s Inside Track panel on Wednesday.

“Back in the first half, it was really hard to value businesses,” said Marissa Freund, chief operating officer for M&A in Australia and New Zealand at Goldman Sachs Group Inc. “As the world has started to reopen, that confidence has started to return and that is absolutely flowing through.”

A revived M&A pipeline would be welcome news. The $26 billion of mergers and acquisitions in Australia in the first half of 2020, down about 29% from the same period of last year, according to data compiled by Bloomberg.

More deals are getting done using so-called contingent considerations, terms that link the payout from a deal to performance metrics. Companies are figuring out logistical workarounds to completing deals that continue to have strong rationales, UBS Group AG co-head of M&A for Australasia Jonathon Mant said.

One example is BGH Capital’s offer to acquire cinema and theme park company Village Roadshow Ltd., which the Swiss bank advised. The ultimate price depended on the scale of business reopening, Mant said.

With uncertainty still abounding, the market could also see greater use of “scrip” deals, with consideration including shares in the merged company instead of cash, Corrs Chambers Westgarth’s Head of Corporate Sandy Mak said.

Companies’ ability to arrange financing has not been impacted as acutely as in the 2009 financial crisis, Goldman’s Freund said

Corporate boards can ultimately use the crisis to reorient their businesses, potentially selling brands or business units, according to Kate Stone, head of retail, consumer, healthcare and education investment banking coverage for Australia at BofA Securities.

“We’re now six months on from the start of Covid and corporates are really starting to put the strategic dialogue back on the agenda,” Stone said.

©2020 Bloomberg L.P.

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