Foreign corporates have accounted for 58 per cent of takeover bids

The interest in building materials’ firms like Boral, led by Vik Bansal, underlines confidence in the local economy. Picture: Supplied

Foreign companies are leading a resurgence in merger and acquisition activity based on an upbeat view on the Australian economic outlook and promising a new round of private equity bids.

The building material sector is the focus of early activity, led by the $3.4bn St Gobain bid for CSR, the CRH bid for Adbri and Seven Group’s bid for the minorities in Boral.

The interest in building materials underlines confidence in the local economy, and in the sector an expectation of continued infrastructure spending.

Seven Group’s Ryan Stokes led the market with his 2021 partial bid for Boral which he is now following up to mop-up the minorities.

Stokes at the time is said to have beaten Irish group CRH’s interest in Boral, which was showing signs of fatigue in the wake of Mike Kane’s decade in power, but importantly ahead of the expected infrastructure spending boom.

UBS figures show that year-to-date foreign corporates have accounted for 58 per cent of takeover bids, against local corporates at 27 per cent, and private equity at 15 per cent.

The 10-year average has foreign corporates at 28 per cent, local companies at 39 per cent and private equity at 33 per cent.

UBS’s Jonathon Mant noted: “It’s clear that in a challenging global economic and geopolitical environment, Australia is a relatively attractive destination to pursue growth and in which to transact.”

Seven Group’s Ryan Stokes led the market with his 2021 partial bid for Boral which he is now following up to mop-up the minorities. Picture: Britta Campion / The Australian

That’s the hope and, while bankers are not afraid to talk up prospects, the omens look good.

As the year progresses, the M&A statistics should revert to the mean as PE joins the party.

The Saint-Gobain bid has been one of the best managed in recent years, with the value developed by the CSR team of retail veterans chair John Gillam and chief Julie Coates progressing the extraordinary value former boss Rob Sindel managed to pocket from his dealings with Kane on the Boral brick acquisitions.

The CSR asbestos overhang was seemingly never an issue, but better still the French, as a bigger company, can amortise the inevitable costs coming down the line from the reality that CSR is one of Australia’s biggest polluters, and carbon costs are rising.

While 40 per cent of the global economy is holding an election of some sort this year and geopolitical tensions run high in the Middle East and Ukraine, the overall global economic outlook looks better than this time last year.

Last year’s fears of recessions in Australia, the US and Japan have waned and, with the Fed and perhaps the RBA expected to cut interest rates in the second half of the year, the road is also clear for more PE bids.

By definition, private equity’s day job is to deploy capital, which explains why, overloaded with spare capital, it will feature more in takeover talks as interest rates fall.

On the back of a better than expected earnings season, the Australian stockmarket is trading at a price-earnings ratio of 16.5 times, against a long-term average of 14.8 times, but if interest rates ease, as expected later this year, there is no expectation of a correction any time soon.

This is another reason why corporates are spending on deals and, conversely another is while equity markets are strong, the global economic growth is just OK, not exactly shooting out the lights.

This means the right acquisitions can provide a corporate growth option.

The Australian market has another strength in that it is highly concentrated, so pick your sector and you are more likely to be buying into a duopoly or oligopoly, which means no pesky competitive pressures.

If the early signs are realised, 2024 should be a banner one for Australian bankers, corporate lawyers and, as a consequence, high-end property.

ESG headaches

Just as ESG hype wanes, regulation in Australia and around the world is increasing, complicating life for big investors and companies as corporate cops step up scrutiny of the veracity of claims.

The trick for big super funds is to know just which investee company is doing what and how this meets with it and their own regulatory obligations across the supply chain from suppliers to customers.

Regulators globally are quick to jump on funds overhyping their green credentials.

Into this gap steps London-based GaiaLens which is an AI-backed analytical software tool to help funds track their investments and obligations.

Founded five years ago by Seb Kirk and Gordon Tveito-Duncan, the company launches its Australian arm this week with a small team backed by former Superannuation Minister Nick Sherry and including Nick Brookes, Dave Coogan, Chris Liddell and Dave Goodwin.

Gaia is the Greek goddess of the earth, mother of all life on earth and former hippy poster child which Tveito-Duncan figured was an appropriate name for their bespoke software-as-a-service product.

The company which has around 30 institutional clients and has a slew of prospective clients in Australia based on part visits.

It should be noted GaiaLens does not have the sector to itself with ClarityAI, Integrum ESG and True Value Labs other players in the game.

GaiaLens starts working with the fund, working through its known problems to design its system to match the issues.

Consistent data is a key issue as regulatory demands come more from across a wider range of asset classes from carbon emissions into biodiversity.

The service also screens potential investee opportunities, helping with portfolio analytics.

Email alerts are sent to the investor when an investee company steps off track or explaining just how a new investment meets the criteria 20,000 globally listed companies and two million private companies from the perspective of equity, fixed interest, real estate and infrastructure investments.

The bottom line for fund managers is just as Wesfarmers’ chair Michael Chaney has advocated for decades, “investing in a sustainable future is both an ethical decision and makes good business sense”,

GaiaLens help by providing measuring tools to match investments to these aims and the accompanying regulations.

Spotlight on supermarkets

As the ACCC winds up its supermarket inquiry and the Senate select committee hearings start late next week, it is worth noting supermarket prices are a global issue.

The German Monopolies Commission in a recent report noted structural problems with its food supply chain and weak bargaining power for its farm sector and is considering referring the issue to its Federal Cartel Office (FCO).

Germany has a separate independent advisory group in the Monopolies Commission with the FCO the competition cop.

The US Federal Trade Commission this week launched court action trying to stop the merger of two supermarket chains, Kroger (10 per cent share) and Albertson (6 per cent) which compete with WalMart (29 per cent) and Costco (8 per cent).