Market activity for public mergers and acquisitions in 2020

Chapter 1 of Gilbert + Tobins 2021 Takeovers + Schemes Review (below) examines market activity for public mergers and acquisitions in 2020.

Market activity in Australia remained stable in 2020 despite the COVID-19 pandemic, and the fourth quarter shows a strong upward trend

Despite the seismic financial impact of the COVID-19 pandemic, the total number of public M&A transactions in Australia in 2020 was consistent with business activity in 2019.

The outbreak of the pandemic in March 2020 clearly initially had a deterrent effect on transactions. The resulting price and asset price losses, however, opened up opportunities. As the world adapted to new norms, those with financial capacity, including private equity, and companies with strong balance sheets saw it as a time to engage in strategic acquisitions. Indeed, it seems that adversity has opened up opportunities.

The last quarter of 2020 in particular benefited from a sharp increase in M&A activity. Confidence increased significantly. M&A grows from a fruitful combination of companies that have been successfully adapted to remote work, cheap debt financing, rally in financial markets, and the development and launch of multiple vaccines. These ingredients and confidence will continue through 2021, which is expected to lead to increased business activity later this year.

Mergers and acquisitions are about numbers

In 2020, a total of 42 transactions worth $ 50 million or more were announced last year. This was a slight increase over the previous year (41 transactions in 2019), but was still well below the 49 transactions in 2018.

The number of announced transactions valued at over $ 500 million rose slightly from 11 in 2019 to 12 in 2020. However, that number is also significantly lower than in 2018 when there were 21 high-value transactions (an eight-year high ). There were 30 transactions between $ 50 million and $ 500 million in 2020, which was in line with the previous year.

Mergers and acquisitions trade value

The total transaction value rose significantly in 2020 as approximately $ 32.8 billion in transactions were announced, up 37% from 2019.

However, this higher total may not reflect the general increase in public M&A activity. Rather, that headline was amplified by two deals over $ 5 billion in volume (while there were no deals over $ 5 billion in 2019):

  • Coca-Cola European Partners proposed to acquire Coca-Cola Amatil for $ 9.8 billion; and
  • Northern Star Resources’ successful acquisition of Saracen Mineral Holdings for $ 5.8 billion.

In addition, the three competitive supply situations (Infigen, OptiComm and Cardinal Resources) increased the total transaction value of 2020. Cardinal Resources alone had four competing bidders: Shandong Gold (the successful acquirer), Dongshan Investments, Nord Gold, and Engineers & Planners Co.

Foreign bidders continue to be major players in high quality mergers and acquisitions

Four of the five $ 1 billion deals involved a foreign bidder.

This continues the trend from 2019 that foreign bidders are key players in public M&A deals with the highest value.

Overall, however, the share of foreign offers was lower in 2020 compared to 2019 and 2018, which is probably due to the following:

  • the stricter regulatory framework for foreign investments, according to which all foreign acquisitions, regardless of their size and lengthy review times, must be reviewed (see Chapter 4 Foreign bidders in public mergers and acquisitions in 2020);
  • the challenges of doing business across borders in a pandemic where basic due diligence such as site visits can be difficult, if not impossible; and
  • a risk averse approach by all bidders, including potential foreign buyers.

Private equity firms in Australia were cautious but continued to conduct M&A deals

Private equity firms continued to be key players in public M&A deals in 2020. However, the total value of public M&A transactions in the Australian market involving this type of acquirer has decreased significantly.

While the share of private equity deals by volume remained the same as 2019, private equity bidders accounted for 24% of all deals over USD 50 million (10 deals in 2020) and 18% of public M&A deals by value after 44% in 2019 and 28% in 2018.

Private equity firms were interested in a variety of sectors including real estate, finance and utilities, with each of these sectors accounting for 20% of the number of private equity deals.

In terms of raw stats, private equity interest in the healthcare sector appeared to have dropped significantly from 57% of the value of total private equity investments in 2019 to 21% in 2020. However, we consider this to be an anomaly in our dataset that focuses on mergers and acquisitions involving ASX-listed companies as private equity clearly sees opportunities in the healthcare sector. Apart from the takeover of Metlifecare by EQT, the private equity activity in this sector is enhanced by the acquisition of the NZX-listed dental group Abano Healthcare by BGH Capital and the medical center business of the ASX-listed Healius, the takeover of Advanced Personnel Management by Madison Dearborn and the acquisition of Crescent Capital by Madison Dearborn evidenced by PRP Diagnostic Imaging.

Real estate saw the highest spending by private equity firms. 49% of total investment was in this sector, which was largely dominated by ARA Asset Management’s prorated takeover bid of $ 2.4 billion for Cromwell Property Group.

* Percentage of PE investments across all PE deals by value

While we distinguish between traditional private equity firms and private capital, the participation of private capital, pension funds and pension funds in mergers and acquisitions of public companies has also increased significantly. Important examples for 2020 were:

  • Aware Supers Unsuccessful $ 676 Million Proposal for OptiComm; and
  • AustralianSuper’s no-obligation and indicative approach of $ 5.1 billion to Infratil (noting that there are no non-binding indicative suggestions in our review).

Further developments that were published in early 2021 were:

  • The potential acquisition of Bingo Industries by CPE Capital and Macquarie Infrastructure and Real Assets (MIRA) for $ 2.3 billion; and
  • MIRA and Aware Super’s non-binding indicative proposal for the Vocus Group.

As the mandatory superannuation system in Australia continues to drive the growth of the capital of Australian superannuation funds, these types of investors will no doubt increasingly be drawn into public mergers and acquisitions when attempting to invest that money. Indeed, the greater investment needs of Australian pension funds will lead to larger investment sizes that will inevitably lead them to publicly traded markets.

Time of announcement

There was a significant drop in transaction volume at the beginning of the second quarter of 2020 as the effects of the COVID-19 pandemic were felt in Australia. Only two deals were announced in April and May:

  • SSR Mining Acquires Alacer Gold for $ 2.7 Billion; and
  • Golden Investment’s acquisition of Stanmore Coal for $ 256 million.

Business picked up after the first wave of the pandemic in Australia subsided, particularly in June when eight transactions were announced (most in each month of the year).

In fact, the number of deals announced rose from quarter to quarter from seven in the first quarter. 10 in Q2; 11 in Q3 through 14 in Q4, reflecting increased confidence and business activity. M&A is clearly on the rise, with a number of potential multi-billion dollar deals announced by Bingo Industries, Vocus, Tilt Renewables and Tabcorp in the first six weeks of 2021.

Public Merger and Acquisition Highlights in 2020

$ 5 billion +

  • Coca-Cola European Partners proposed the acquisition of Coca-Cola Amatil for $ 9.8 billion
  • Northern Star Resources acquires Saracen Mineral Holdings for $ 5.8 billion

$ 1 billion +

  • SSR Mining’s acquisition of Alacer Gold for $ 2.7 billion
  • ARA Asset Management’s share takeover bid of $ 2.4 billion for Cromwell Property Group
  • EQT Fund Management to acquire Metlifecare for $ 1.2 billion

Over $ 500 million

  • Iberdrola’s $ 893 million acquisition of Infigen Energy defeated UAC Energy’s competing $ 835 million bid
  • Uniti Group’s acquisition of OptiComm for $ 694 million has rejected Aware Super’s competing $ 676 million proposal
  • Shandong Gold’s $ 565 million acquisition of Cardinal Resources defeated competing bids from Dongshan Investments, Nord Gold, and Engineers & Planners Co.
  • WPP proposed the acquisition of WPP AUNZ for $ 596 million
  • The acquisition of the Village Roadshow by BGH Capital for $ 586 million

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