M&A activity in Australia, which has the largest M&A market in the Asia Pacific ex-Japan region, is set to grow by 20% this year, according to JPMorgan.
Local financial boutique East & Partners estimates that purely domestic M&A deals worth about A$11 billion (US$7.7 billion) are due to be completed in 2004 and expects the market to continue to grow by several billion dollars in 2005.
Paul Dowling, principal banking analyst at East & Partners, says the pipeline consists of deals set to take place as a result of consolidation in utilities, state sector assets, telecoms and the retail sector. Shaun Treacy, co-head of investment banking and head of M&A at JPMorgan Australia, says: ?The Duke [Energy] disposal [of its Australian and New Zealand gas assets for US$1.4 billion in the first quarter of 2004] and Singapore Power?s US$3.7 billion offer for TXU Australia confirm that the utility sector is alive.?
Despite the fact that the above utility deals are cross-border transactions, East & Partners says the key difference in this year?s pipeline of expected deals is that they involve fewer cross-border M&A deals. ?Instead of international companies coming into the Australian market to make acquisitions, existing domestic players are fuelling the high level of activity and largely focusing inside the Australian domestic economy,? says Dowling.
Last year, the total volume of purely domestic deals was around A$8.4 billion. These are still a relatively small part of the announced M&A deals for 2003. In fact the largest deal last year was a cross-border deal. News Corp acquired a 34% stake in US-based Hughes Electronic The largest deal announced this year to date already surpasses the News Corp deal. In the second quarter, Westfield Group announced a three-way A$34 billion merger of Westfield Holdings, Westfield Trust and Westfield America Trust. JPMorgan?s Treacy says: ?We expect the Australian M&A market to continue to grow strongly following on from its improved performance in 2003 [which was] up 66% from a five-year low in 2002.
As a result of the pick-up in activity, local players are looking to grow their M&A and corporate advisory businesses. Firms are recruiting locally as well as repatriating talent from other markets. JPMorgan?s Treacy says: ?The repatriation of staff from JPMorgan?s global network has played a huge part in our overall strategy to build out the Australian franchise, across our full financial services offering, including M&A.? East & Partner?s Dowling says Merrill Lynch, UBS and CSFB have also been aggressively hiring and repatriating.
An increasing proportion of Australia?s M&A activity is taking place among companies with less than A$350 million annual turnover, according to East & Partners. ?There is a sense that this particular dam is starting to burst after several dry years, with the majority of companies operating in this mid-corporate sector looking to grow their business, increasingly so through acquisition,? says Dowling.
In response to the fact that the sub-top 500 corporate market accounts for around a third of M&A transaction volumes and is made up of Australia?s future large corporations, investment banks are looking to increasingly expand their business to participate in M&A activity between these smaller companies. In this space they will compete with the corporate advisory business of PwC, KPMG and Deloitte & Touche.
Other participants in this market include local advisory firms Carnegie, Wylie & Company, Gresham Partners and Caliburn. Dowling says: ?[These firms are] promoting the independence and transparency of their advisory model, [and] are also making a significant impact in the M&A market.?
