Alex Cartel is pinning Citi on M&A map

Citi’s Australia and New Zealand head of corporate finance and advisory, Alex Cartel. Picture: Aaron Francis/The Australian

At the height of the bank talent wars in mid-April last year, Citi Australia poached Alex Cartel to run its investment banking team.

After leaving Deutsche Bank and a spot of gardening leave, in July 2020 Cartel started at Citi in Melbourne. Despite being in lockdown for most of the time since, he pulled in the $22bn Santos merger with Oil Search, an advisory mandate that has nudged the bank up to third place in the Refinitiv rankings of completed M&A deals.

“The whole thing was negotiated from this room,” he says, speaking from his home office.

“We didn’t have one face-to-face meeting to put together a $22bn merger. Think about transactions in years gone by – I wouldn’t have been home for a month in the lead-up to that. I would have been in hotel rooms banging the table and in board rooms. Amazing how it can be done.”

Strong performance in M&A and investment banking is all the more important for Citi Australia chief Mark Luet, who in August agreed to sell the consumer banking business under a global directive to reshape the bank.

Cartel is president of the Australian Takeovers Panel that resolves disputes about takeovers through peer review. Citi is also co-defence adviser in the current takeover battle for AusNet. APA is locked out of the AusNet data room, where Canadian investment giant Brookfield has exclusive access. A complaint by APA is currently being mulled over by the Takeovers Panel.

This is just one saucy window on the M&A action involving Australian companies valued at $330bn in the first nine months of this year. The previous annual record was $139bn in 2007.

Ahead of Citi’s annual investment conference on Wednesday and Thursday, Cartel talks about his latest deals, the forces behind all the new business, the fight over bank talent and the chat he will have with the head of the Foreign Investment Review Board, David Irvine, as part of the conference.

Cartel says that in such a strong M&A environment, tactics are being worked and finessed in a way not seen before. “This is coming out in aspects such as exclusivity, which you are seeing playing out currently in the AusNet situation. It is coming out in parties looking to secure pre-bid stakes or commitments from major shareholders, like when a bid was made for Link Group earlier in the year a party obtained a public commitment from Perpetual which effectively put that into play. And in the Seven Group bid for Boral, where Citi was an adviser.

“Obviously that was an unconditional bid by a party that owned 23 per cent at a nil premium to start with. It was framed as an ­accelerated creep but it ended up being a very successful tactic. They ended up with over 70 per cent control.”

Cartel won’t say more on the innovative bid tactics being applied to the AusNet situation, which is still being assessed by the Takeovers Panel.

What is unusual here is that the board of AusNet, as advised by Citi and Adara, have agreed that Brookfield can have an exclusive look at the books for eight weeks with no “fiduciary out” if another bidder then lobs in a higher offer, presumably demanded by Brookfield, which upped its offer price.

On September 1, APA made a bid at $2.32 a share. Brookfield’s cash bid at $2.50 was a huge jump, and for a utility business represented quite a premium. But that bid was contingent on exclusive rights to kick the tyres first, to which the AusNet board agreed. APA later offered a part scrip bid valued at $2.60 a share at the time, but AusNet was unable to open the door under the exclusivity arrangements with Brookfield.

It is hard to say which way the Takeovers Panel will decide.

However, versions of these tactics have been used before. In 2019, tech company GBST decided to run a public auction for the exclusive rights to access the data room. That was won by SS&C Technologies to the fury of FNZ Group, which complained to the Takeovers Panel. In that case, the panel accepted the process. FNZ won the battle by putting in an unconditional higher offer.

The panel could decide that the exclusivity arrangements between Brookfield and AusNet are a step too far and rule that APA have access to the books. The interesting question is whether these tactics delivered a lift in bid price that might not otherwise have emerged.

Cartel had 20 years running corporate finance at Deutsch, but before that he was an M&A lawyer at law firm Allens. Like David Gonski (now chairman of Barrenjoey) and John Green, who both started out at Freehills, lawyers can make smart bankers.

Creativity is just one feature of the new game. Cartel says the ESG thematic is playing out in real time in takeovers and mergers with strong investor interest in resources: “At next week’s conference, investors will meet with companies for one-on-one meetings. The most in-demand firms are future-facing commodities, like OZ Minerals that is in copper,” he says. “We have done some big raisings in recent times for IGO in lithium and we did one for Sandfire last week that have quite a big copper project. And Fortescue Metals has announced they are now targeting zero scope 3 emissions by 2040.”

ESG is also driving consolidation in traditional energy, deals such as Santos and Oil Search, Woodside and BHP, because scale helps business drive energy transition. Investors are also intrigued by the tech sector, and seeking meetings with emerging companies on the ASX, to the giant Telstra contemplating both sales and acquisitions.

Citi Australia’s recent M&A work includes advising the NSW government on the sale of a stake in WestConnex to Transurban, co-advising Woolworths on its $12bn demerger of Endeavour Group and advising IOOF in the $1.5bn MLC Wealth acquisition.

There is one new risk that Cartel identifies in all the activity: target companies are so often publicly listed, and that makes them the golden goose for predators. “We are a bit concerned by this de-equitisation of the ASX, with all these listed companies being taken over. It is important to have a vibrant pipeline of IPO to replenish the ASX boards.”

He believes the current robust pipeline of IPOs, including Judo Bank, which Citi is advising, will roll out through to the first half of next year. But from the M&A side, there has been less equity financing than would typically accompany an M&A boom. That is due to an abundance of capital and strategic transactions where parties are looking to merge for scale.

“A lot of the M&A has been cash acquisitions from someone who is well capitalised, or there are scrip deals like Santos/Oil Search, and Square/Afterpay. If APA was to acquire AusNet, that would be a classic case of APA raising equity to fund a transaction. And we did see Transurban do a very big equity raise to fund the WestConnex offer just last week.”

Cartel admits to feeling lucky that Citi has not been hit as much as some of its rivals by upheaval in investment banking talent when new players Jarden and Barren­joey raided good talent from the incumbents.

Cartel is growing his team. “We can continue to build our full service banking capability that has best in class strategic advisory capability at a time when many of our competitors are weakening or you have these new entrants that don’t have the same global reach or product reach. That mix has enabled us to retain our staff and attract talent into Citi.”

Still in vogue is the idea of the relationship banker. “My philosophy in strategic advisory is you don’t want to try to be all things to all parties, particularly when you are a bank with a team of our size.”

With Santos, his ties go back to working on the successful $17.9bn defence of a tilt by EIG and Harbour Energy. “Santos has been a client that I feel I deeply understand the business and the journey the company has been on particularly under Kevin (Gallagher) but there are others.”

He believes Covid-19 will change how business is done. “The number of times historically I’ve jumped on a plane to go to New York or London or somewhere for a one-hour pitch to a client, which cannot be efficiency – I reckon that’s gone,” he says.

Everyone will want to fly at first, but he sees new practices for pitches by global advisory teams on big deals. “It makes sense to have all the people on the screen as a holistic group pitch – far more powerful than having four people jet-lagged and one person on the phone from Jo’burg.”