Deals rush ends mergers drought

A rush of major acquisitions announced in October has broken what was shaping up to be a drought

A rush of major acquisitions announced in October has broken what was shaping up to be a drought in Australian mergers and acquisitions in a year plagued by crippling disruptions linked to COVID-19.

The outlook is now looking bright for more major M&A deals, according to sources, with much of the activity expected in the final quarter of 2020 and next year.

M&A activity was at 17-year lows only weeks ago, as companies battened down to weather the COVID-19 storm and funding costs increased.

Data from Refinitiv, formerly Thomson Reuters, has shown that announced M&A transaction volumes for 2020 have been almost half the $US88bn tally seen at September 30 last year, as major transactions such as an $8.8bn mooted acquisition of Ampol by Couche-Tard was shelved amid the onset of the global pandemic, as was a mooted $1.9bn acquisition of the National Storage REIT by Public Storage.

At the start of this month, announced inbound, domestic and outbound deals amounted to $US48.3bn ($67.8bn), the lowest year-to-date total since 2003.

But market sources say that the global pandemic has now sparked a frenzy among private equity firms hoping to find buying opportunities at a time when some stocks have been beaten down by the COVID-19 conditions, and for most, the focus is understood to be companies in technology, food and healthcare.

The latest $9.3bn takeover play by Coca-Cola European Partners for Coca-Cola Amatil will see Rothschild and Credit Suisse, which worked for Coca-Cola European Partners, UBS, which defended Coca-Cola Amatil and Goldman Sachs, which was advising The Coca-Cola Company based in Atlanta, all well rewarded.

The other large transactions to emerge in recent days have been a $2.8bn-plus play for Link Administration Holdings by Pacific Equity Partners and The Carlyle Group, which is advised by Jarden.

Link is advised by Macquarie Capital and UBS.

At the start of the month, Northern Star Resources and Saracen Mineral Holdings agreed to a friendly $16bn merger that involved Macquarie Capital and West Australian-based Sternship Advisers.

When it comes to the latest announced deal involving Coca-Cola, the advisory role is a coup for Rothschild Australia, propelling it up the league tables and maintaining momentum after it advised Asahi on the $16bn acquisition of Carlton United Breweries, which was the largest Australian M&A deal of last year, and the sale of Westfield to Unibail Rodamco in the previous year.

The relationship between Rothschild and Coca-Cola European Partners dates back to 2013, when it advised the Daurella family, which created the first Spanish bottling company in 1951.

It then advised on a series of mergers with other European bottlers of Coca-Cola to create Coca-Cola European Partners.

Credit Suisse has a long-term relationship with Coca-Cola European Partners and provided a “highly confident” letter of funding assurance for the transaction to Coca-Cola Amatil.

It also acted as a financial adviser to Coca-Cola European Partners’ Affiliated Transaction Committee comprising company board members.

The Coca-Cola Company owns a 30.4 per cent stake in Coca-Cola Amatil and also a 19.3 per cent interest in Coca-Cola European Partners.

Based on figures from Thomson Reuters, investment banks Macquarie Capital, UBS, Goldman Sachs, Morgan Stanley and Rothschild have topped the tables when it comes to M&A this year involving an Australian company.

With respect to M&A deals involving targets in Australia, UBS leads the table with deals worth $14.86bn and 27.8 per cent of the market share, followed by Macquarie Group, Goldman Sachs, Credit Suisse, Rothschild and Morgan Stanley.

Other major deals for 2020 include Bain Capital’s $3bn recapitalisation of Virgin Australia, KKR’s $1.7bn acquisition of a 55 per cent stake in Colonial First State and IOOF buying MLC from the NAB.