M&A activity raring to go, insiders say

The number of deals is set to increase as the pandemic subsides, but the structure of agreements will change.

The number of capital raisings over the COVID period meant many companies now had the capital to engage in M&A activity.

The Australian mergers and acquisition market is raring to go as the pandemic subsides, according to leading figures in the M&A ecosystem, but the structure of deals will change to reflect the liabilities posed by COVID-19.

Speaking at conference on the future of M&A in Australia on Wednesday, representatives from Goldman Sachs, Corrs Chambers Westgarth, Bank of America and UBS agreed that a pipeline of deals disrupted by COVID-19 is moving again.

Managing director of M&A at Goldman Sachs Australia Marissa Freund told the panel the number of deals conducted in the third quarter was already rebounding.

“The volumes we have seen for M&A in quarter three are equal to what we saw in the entire first half of the year,” she said, despite valuation problems introduced by the pandemic.

“Back in the first half, it was really hard to value businesses.

“As the world has started to reopen and as people have started to go back and behave more normally in terms of activity, I think confidence has started to return.”

Head of Corporate at Corrs Chambers Westgarth, Sandy Mak said a third-quarter “uptick” in deals would accelerate as a stagnant global economy and low interest rates force companies to become more aggressive in their search for yield.

Ms Mak said she anticipated that there would be more “hostile” transactions as well as a greater use of scrip to share risk.

“There are a lot of discussions in our pipeline that are scrip based or joint venture based ... and I’m hoping to see more of that in the near future,” she said.

Co-head of M&A Australia at UBS Jonathon Mant said that the driving factors between deals that were in the pipeline when the pandemic hit had not disappeared and were, in many cases, more pressing.

“I think fundamentally what we say happened into 2020 was that we had a healthy pipeline of M&A activity both in Australia and globally that was put on hold,” he said.

“The drivers behind that pipeline are still there.

“They haven’t changed and in some cases they have become more pressing.”

With the logistic exercises surrounding completing deals in a post-COVID world mostly solved by the advent of widespread video conferencing, Mr Mant said structural change in the economy would see deals accelerate, often with contingent consideration attached.

“There’s been a return of a delayed pipeline and separately we have seen ... structural change that has accelerated and we are seeing companies pursue growth through M&A,” he said.

“We will see more contingent consideration and structured consideration packages – for example, the Village proposal with consideration outcomes for opening of theme parks.”

Last month BGH Capital announced it would purchase theme park operator Village Roadshow, with the final takeover amount contingent on the extent to which the Queensland economy had reopened.

Head of Australian consumer, retail and healthcare at Bank of America Kate Stone said the number of capital raisings over the COVID-19 period meant many companies now had the capital to engage in M&A activity.

“Over this period we have seen many corporate capital raisings … they have money to grow,” she said.

“It really depends on the particular company and the sector and what the impact of COVID-19 has been.”

Ms Stone said that walkaway rights would become a mainstay of future deals due to the economic uncertainty of future COVID-19 breakouts.

“We are also seeing the introduction of pure walkway rights if performance isn’t at a satisfactory level to justify the transaction,” she said.