ACCC’s changes to merger regime will spur a flurry of deals, says Rothschild & Co

The impending tightening of the ACCC’s merger approval regime will trigger the fast-tracking of deal announcements in 2025, says Rothschild & Co Australia.

Rothschild’s head of global advisory and new recruit, Alex Cartel.

The competition regulator’s incoming merger approval regime will spark the bringing forward of deal announcements in 2025, as acquirers shrug off any impact of a looming federal election and seek to get ahead of the landmark laws.

That’s the view of Rothschild & Co’s Australia chief, Marshall Baillieu, and new recruit and head of global advisory Alex Cartel. Mr Cartel, who is also president of ­industry adjudicating body the Takeovers Panel, joined Rothschild in October.

The pair tip steady to improved deal flow in 2025 and don’t expect a federal election – due by May 17 – to weigh on merger and acquisition activity next year. But they say the new sweeping merger regime may see the timing of deals brought forward.

“Deal timetables will be trying to close before that merger regime comes in, if you fall within the remit,” Mr Cartel said.

“With greater political certainty in the US and the interest rate cycle having turned there, we would expect that the [Australian] deal flow will increase, if not at least remain steady.”

Legislation was passed last month that stipulates that all mergers and acquisitions above a specific threshold must be notified to the Australian Competition and Consumer Commission. The threshold relates to where a proposed combination has turnover of more than $200m or the buyer has more than $500m in Australian turnover.

The overhauled merger regime comes into effect from January 2026, but allows for parties to use the new process on a voluntary basis from July 2025.

Mr Cartel said the July date could spur parties to bring forward their acquisition plans to ­ensure they were considered under the current and less onerous regime.

Mr Baillieu said he didn’t expect a federal election or caretaker mode for the government to curb M&A activity in the early months of 2025.

“Prior elections have actually shut down deal flow, this one is probably less likely to,” he said.

Mr Baillieu highlighted a pick-up in acquisition interest and activity by private equity firms, and said he expected more announced transactions involving ASX-listed companies. “We’re going to see M&A activity pick up. Whether that translates to a pick-up in completed deals for 2025 we’ll wait and see,” he said.

Globally, Rothschild this year has been involved in defending Anglo American in relation to BHP’s tilt for the company, while in Australia it is working on Chemist Warehouse’s merger with ASX-listed Sigma Healthcare, which is essentially a reverse takeover. Rothschild is advising Chemist Warehouse on the transaction, as well as founders Jack and Sam Gance and Mario Verrocchi.

Rothschild & Co head of global advisory Alex Cartel with Australian chief executive Marshall Baillieu.

Mr Cartel also expects an M&A rebound next year from US companies seeking to buy Australian targets.

“In 2024, inbound public M&A from the US was only 11 per cent,” he said, while historically the US accounted for 25-30 per cent.

“With [Donald] Trump’s resounding win in the election, a stronger US dollar, we would expect to see a bounce back in US-led inbound activity and probably a continuation of European and Asian activity.”

Announced M&As with any Australian involvement are up 13.6 per cent this year to $US108bn ($168.3bn), compared to the same period in 2023, according to data from London Stock Exchange Group, formerly Refinitiv. This year’s figure is also below the average annual tally for the past decade and masks a 13.8 per cent drop in completed transactions in 2024. Bankers closely watch completed deals as they earn fees on those transactions.

Mr Cartel, who used to run Citigroup’s Australian banking, capital markets and advisory unit and before that had a long stint at Deutsche Bank, said he joined Rothschild because he saw value in the independent advice model. He used the example of Rothschild being an independent adviser and hence able to provide more options to Chemist Warehouse, given the firm was not focused on boosting its own initial public offering pipeline.

“All of the big integrated banks had that deal in their IPO pipelines forever … that was exacerbated by the fact that there were no other (large) IPOs in their pipeline,” he said.

“Was anyone ever really thinking about alternate structures other than IPO? I don’t think any other global investment bank was, because they were completely myopically ­focused.”

Mr Cartel said for confidence to return to the IPO market the issue of private equity-led deals, which were being shunned by investors, had to be addressed.

“It’s been the loss of confidence by investors in private equity IPOs that has really dried up that supply channel into the listed space. And that’s primarily what has to change to see the flow (increase),” he said. “The track record has been so poor that the investor scepticism is very high … every time a private equity (IPO) vendor puts out a set of financials, the investors are discounting those financials by 20-30 per cent.”

Secondary raisings, block trades along with a smattering of ASX listings late this year – including payments firm Cuscal and Friday’s float of HMC Capital’s data centre trust – have supported equity capital markets activity this year, although annual float activity remains well below the average of the past seven years.

Rothschild helped New York-based private equity firm Odyssey Investment Partners decide on execution and which investment bank to tap for a selldown of its stake in AUB in October.

Rothschild’s Australian entity had a tough calendar 2023, however, with the firm posting a net loss after tax of almost $8.9m, after booking a $9.6m profit the prior year, according to the latest accounts. The firm attributed the result to “significantly lower” levels of M&A in 2023.

Mr Baillieu said given it was an independent firm and not pushing customers to conduct deal flow, Rothschild’s performance would have “ebbs and flows”.

“The average result we’ve had over the last five-to-10 years, which is how we think about our business, it’s been growing significantly and very profitable,” he added.

Rothschild’s business concentrates on targeted sectors in M&A and also provides advice on equity and debt financing and restructuring.

On completed M&A, Rothschild ranks eighth this year in the Australian league tables up from 21st at the same time in 2023. Globally, the firm ranks tenth this year for merger fees as at December 10.