Rothschild & Co Australia is optimistic deal volumes will pick up in the second half of 2019 after declining business confidence and the upcoming federal election weighed on mergers and acquisitions activity in the first quarter.
Gareth Cope, who jointly leads Rothschild locally, believes slowing economic growth and uncertainty around the election is underpinning more caution in boardrooms.
“As the economy deteriorates, it takes confidence down, and we need confidence to do deals,” he said.
“It’s just a more cautious start to the year but we are hoping that past the federal election, things will settle down.”
Economic activity eked out a small 0.2 per cent gain in the December quarter, leaving annual gross domestic product at a below-trend rate of 2.3 per cent.
Despite transactions including Wesfarmers’ $1.5 billion tilt for rare-earths producer Lynas, a bid for healthcare group Healius and the $US2.5bn ($3.5bn) sale of Brambles’ plastic containers business IFCO, activity dipped in the three months ended March 27.
Mergers and acquisitions with Australian involvement slipped to $US19.4bn in the first quarter, down 1.7 per cent on the same period in 2018, according to Refinitiv, formerly the Thomson Reuters financial and risk business.
The market for initial public offerings was dire, with new listings totalling just $US22.8m in the first quarter, the slowest start to a year in a decade.
Total equity capital markets activity, including secondary capital raisings and convertible securities, printed at $US2.5bn, down almost 59 per cent on the first quarter last year.
Despite mergers and acquisitions far outpacing new ASX listings, Mr Cope did not see the local bourse’s size being reduced over the medium to longer term.
“I can’t see it shrinking. At the end of the day, it is a very strong market relative to the country’s size. We are just in a (IPO) lull,” he said.
Rothschild posted a $9.3m profit in Australia for the 12 months ended December 31, accounts lodged with the corporate regulator showed. That compared to a profit of $1.6m for the nine months ended December 31, 2017, as the local entity changed its reporting period.
Revenue surged to $47.1m in 2018 as Rothschild benefited from fee income from a number of high-profile deals. The advisory firm tended to Westfield on its combination with Unibail-Rodamco, defended oil and gas giant Santos against Harbour Energy’s bid and worked with Mitsui on its takeover of exploration firm AWE.
Mr Cope said in 2019, Rothschild tipped the busiest sectors would include oil and gas, energy, business services and healthcare.
MinterEllison partner Alberto Colla expects the May federal election to have only a short-term impact on foreign bidders in sensitive sectors but expects deal flow will be healthy in 2019 in any case.
There is “plenty in the pipeline, especially for foreign bidders who appreciate that there’s little point submitting FIRB (Foreign Investment Review Board) applications now,” he said.
“FIRB is effectively closed pending the outcome of the forthcoming federal election. Leaving FIRB timing issues to one side, many foreign bidders are prepared to look through the forthcoming election result because they continue to regard Australia are an important part of their future growth plans.”
The Refinitiv M&A leaderboard for investment banks has UBS in top spot advising on transactions worth $US9.3bn, followed by Goldman Sachs with $US4.3bn and Bank of America on $US3.4bn.
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