Investors eyeing extra takeover action if market, dollar falls

Billions of dollars of recent takeover activity among mining companies could spread through more sectors soon, analysts say.

Anthony KeanePersonal finance writer

@keanemoney

2 min read

May 13, 2023 - 10:27AM

The Australian Business Network

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A rush of takeover activity has highlighted the value in Australian companies, while a weaker sharemarket and dollar will put more stocks in suitors’ crosshairs.

Market analysts say resources, technology and consumer discretionary stocks are the most likely to be future takeover targets, following a spending splurge on mining companies in recent times.

Investors generally like takeovers because they push up asset prices, but some are left with regret – for example, Japanese beer giant Kirin’s $1.9bn takeover bid in April for vitamins giant Blackmores was at less than half the price the stock fetched seven years ago.

IG market analyst Tony Sycamore said the Blackmores takeover “was a little out of left field” in a period dominated by mining sector merger activity.

Energy giant Santos has been mooted as a takeover target. Picture: Brendon Thorne

Billions of dollars have been bid for miners including Newcrest, OZ Minerals and Liontown Resources, and Mr Sycamore said “the big guys are looking for acquisitions”.

“The Australian market is well-priced and has value for the right buyers,” he said.

“The resources sector seems to be where we would expect to see activity.

“Acquirers are often attracted to targets that offer synergies, access to new markets and or new products. Additionally, super funds and infrastructure funds are searching for assets that can generate a respectable yield.”

Oil and gas group Santos was mooted as a possible takeover target in an analysis by fund manager E&P this month.

“Santos has underperformed energy peers over the past 18 months,” E&P’s report says, adding that investors are becoming increasingly frustrated.

“The question is whether international energy companies are noticing this performance and whether there might be appetite for M&A.”

A weaker share market – forecast by some analysts as interest rates fuel recession fears and the US banking crisis continues – could make Australian companies more attractive to suitors, and the Aussie dollar is trading below its 200-week average of 70c.

Market analyst Jessica Amir said value appeared “in times of uncertainty”.

“We have seen some depressed valuations,” she said.

Technology companies were still almost one-third below their previous highs, and there were several tech stocks that could become prey, Ms Amir said.

“Interest rates are still going up and that puts pressure on companies’ valuations in that sector,” she said.

Japanese brewer Kirin offers 1.9 billion takeover for Blackmores

Targets could include Xero, which had a high and reliable cash flow, and logistics technology company WiseTech Global, Ms Amir said.

She said the consumer discretionary sector – another victim of higher interest rates putting pressure on people’s wallets – could also be targeted for takeovers.

“These are companies you know and use on a day-to-day basis – including JB Hi-Fi and Peter Alexander and Smiggle owner Premier Investments.”