Deals Pipeline Set to Add to Record Amount of Australian M&A
Australia has notched its biggest quarter for deals on record, as a sense of urgency grips companies positioning themselves for a vibrant post-pandemic economy, according to Morgan Stanley.
The A$70.9 billion ($50.9 billion) in mergers and acquisitions transactions targeting Australian companies since July began is now the highest total of any quarter dating back to at least 1998, according to data compiled by Bloomberg. The record sum was bolstered Monday as Spark Infrastructure Group agreed to a takeover offer from a consortium led by KKR & Co. valuing the energy infrastructure investor at $3.7 billion.
The flurry of tie-ups defies worries over the potential effects of Covid-19 restrictions and rising geopolitical tensions on dealmaking. Faith in a rebound driven by confidence among consumers and businesses, government stimulus globally and hope for successful vaccination campaigns have convinced executives that asset prices will continue to rise, according to Morgan Stanley.
“With this conviction comes an urgency to deploy capital and take action upon opportunities now,” Richard Wagner, chief executive officer of Morgan Stanley Australia, said in an interview. “We see no sign of activity slowing down.”
Wagner sees more consolidation to come in both global payments and in energy, sectors that include the largest-ever transaction in the country and the biggest technology deal globally so far this year. U.S. fintech giant Square Inc.’s $29 billion acquisition of buy-now-pay-later business Afterpay Ltd. was announced the same morning in August as Australian energy producer Santos Ltd. unveiled its $9 billion takeover of peer Oil Search Ltd.
The figure doesn’t yet count a string of prospective deals. They include BHP Group’s proposed divestment of its petroleum business to Woodside Petroleum Ltd., Australian fuel retailer and distributor Ampol Ltd.’s $1.4 billion offer for New Zealand’s Z Energy Ltd. and a battle for Sydney Airport Ltd. after a potential buying consortium’s latest bid was rebuffed.
Even without those deals, the quarter is not only a record in terms of M&A involving the sale of Australian assets, it’s also the third biggest for transactions involving Australian companies either buying or selling assets.
Morgan Stanley, which is ranked second in Australia for M&A this year according to the Bloomberg league table, advised Square and Woodside on their respective transactions.
More than half of the country’s M&A this year consists of cross-border deals, data compiled by Bloomberg show, even as Australia finds itself fighting a resurgence of the coronavirus pandemic.
“Cross-border activity in Australia has always represented the majority of top deals and continues to do so given Australia remains an attractive jurisdiction, developing high-quality companies,” said Richard Hersey, head of M&A for Australia at Morgan Stanley.
The continued vitality of international dealmaking has been enabled by a streamlining of the due diligence and negotiating process, which has become more virtual, Wagner said.
“Without doubt it has sped up the pace of dealmaking,” he said. “With the restrictions imposed by Covid, counterparties are moving all interactions online and transactions are being executed extremely efficiently.”
With almost two thirds of the year gone and nearly $90 billion in deals targeting Australian assets already on the books, 2021 could easily surpass 2015’s record of $93 billion, Bloomberg data show.
So long as confidence in the effectiveness of vaccines remains intact, Wagner expects activity to remain strong. “The stars are aligning for a major year,” he said.
©2021 Bloomberg L.P.