Lower dollar makes Australia a ‘treasure island’ for offshore dealmakers

The Australian dollar hovering near five-year lows makes Australia look even more attractive to private equity firms hunting for bargains, fund managers say.

Australian fund managers expect deal activity to pick up this year, as US dealmakers look to take advantage of the weaker Aussie dollar.

The Australian dollar’s recent decline has turned the country into a “treasure island” for offshore dealmakers, according to fund manager Geoff Wilson.

The local currency hit a five-year low against the US dollar this week, tumbling to US61c, a level not seen since the Covid pandemic hit markets in March 2020. The Australian dollar has lost more than 10 per cent of its value in little over three months, with the currency recovering slightly on Thursday to trade at US62c.

“With the current weakness in the Australian dollar we’re now a treasure island for offshore investment. We are ripe for more M&A in Australia,” Mr Wilson told The Australian.

“There’s $US5.4 trillion sitting in private equity in the USA and the PE deal count is back at 2016 levels. The IPO market has been subdued for three years straight in the USA and the secondaries market is back at 2010 levels.”

Mr Wilson was speaking after the first bidding war of the year kicked off, with US private equity giants Bain Capital and CC Capital in a $2.9bn tussle over wealth manager Insignia Financial.

Bain on Monday lobbed a sweetened bid for the wealth giant, matching CC Capital’s $4.30 per share offer and teasing a possible scrip component to keep shareholders on side and give it an edge over its rival.

Geoff Wilson of Wilson Asset Management at the 2024 Sohn Hearts & Minds conference. Picture: Ben Searcy

While CC Capital has yet to come back with a counter, global investment giant Brookfield is also understood to be actively weighing a bid for the wealth powerhouse, as previously reported by The Australian.

Insignia is currently weighing the two competing offers.

While Bain is a familiar name in the Australian market — it has scooped up Virgin Australia and Estia Health in recent years — this is CC Capital’s first attempt at an ASX-listed company takeover.

But, it is a return of sorts for the private equity firm run by former Blackstone dealmaker Chinh Chu. CC Capital’s push for Insignia comes more than four years after it bid, unsuccessfully, for wealth manager MLC in mid 2020.

MLC is now a subsidiary of Insignia, which has plans to relaunch the MLC brand this year as part of a five-year turnaround strategy.

The US dollar’s strength against the local currency was likely a factor in the recent bids for Insignia, Australian Eagle Asset Management portfolio manager Alan Kwan said.

“They probably think they’re buying Insignia relatively cheap and the Aussie dollar will likely revert to the long-term average of US70c to US75c over their five- to seven-year investment time frame,” Mr Kwan said.

Tribeca Investment Partners’ portfolio manager Jun Bei Liu said she expected to see “more and more” takeover activity in the near term, in part due to the Australian dollar’s move lower.

“The Australian dollar becoming so cheap is very unusual for where our economy is at. Usually the currency wouldn’t be anywhere close to this unless we were in a recession. So it’s very unusual, and that actually offers a lot of opportunities for international investors,” Ms Liu said.

“All Australian assets are basically on sale at the moment, they look very attractive (for overseas buyers).

“Alongside that, Australia’s wealth sector is very, very attractive. We have one of the largest pension markets in the world, and there are a lot of wealth products that can do better here.

“This is a market that is ripe for disruption, either by technology or international scale with bigger platforms.”

Outside of wealth, other parts of the Australian market which would look attractive to overseas dealmakers include property trusts, “which are much cheaper than in other markets”, Ms Liu said.

There will also be “a lot more” M&A in the resources space in the near term, she predicted.

“There’s a whole long tail of smaller resources companies, including those in some of the out-of-favour commodities. So I actually think resources will have quite a lot of M&A activity continuing into this year.”

Investment banks UBS and Goldman Sachs also expect deals to pick up this year, following the start of the recovery in M&A in 2024.

“2023 was a trough both locally and globally in terms of mergers and acquisitions … and (in 2024) it picked up. But, history tells you that the M&A cycle tends to pick up on a two or three or maybe even four-year period,” Goldman Sachs co-head of investment banking for Australia and New Zealand Nick Sims told The Australian in December.

Originally published as Lower dollar makes Australia a ‘treasure island’ for offshore dealmakers