Year of the takeover looms as predators circle

IT’S still early days, but 2023 is emerging as the year of the takeover as cashed-up predators smell the blood of wilted valuations in the water.

So far, most of the bigticket action has been in the resources sector, most recently with Newmont’s mega offer for Newcrest Mining (ASX:NCM), the biggest Asx-listed gold producer. Canada’s

Brookfield Asset Management and EIG Partners have lobbed an $18bn offer for Origin Energy (ASX:ORG), having earlier teamed up with Michael Cannon- Brookes for a spicy tilt at AGL Energy (ASX:AGL). Meanwhile, the $10bn agreed takeover of copper producer OZ Minerals (ASX:OZL) by BHP (ASX:BHP) is done and dusted. Takeover activity is also creeping into the smallcap sector, notably among the battered tech stocks. Those currently under offer include Readytech (ASX:RDY), MSL Solutions (ASX:MSL) and Nitro Software (ASX:NTO), which on Thursday chose Potentia Capital as its preferred bidder over rival suitor Alludo.

Last year, broadband operator Uniti Group was subsumed by Brookfield and NZ’S Morrison & Co for $3.65bn. And last week Elmo Software was removed from the ASX boards after being gobbled up by Cookie Monster Acquire Co (a.k.a. K1 Investment Management).

In what looks like one from the private equity handbook, Allegro Funds has lobbed an agreed off-market, $150m offer for Slater &

Gordon (ASX:SGH), the underdogs’ law firm that never recovered from its disastrous UK expansion. Who’s next? There’s a long list of obvious or logical targets, but most mergers that are made in heaven fall down in the due diligence stage, or are cruelled by competition rules.

When they do happen, the timing tends to be out of the blue. For instance, the BHPOZ Minerals tie-up had been vaunted for years, so why didn’t BHP swoop two years ago when OZ shares were trading at one-quarter of the offer price? Other vaunted targets are characterised by predictable cash flows and hard-to-replicate assets. An exemplar is arguably the most boring stock on the bourse, gas pipeline operator

APA Group (ASX:APA).

Broker Wilsons nominates Queensland coal-hauler Aurizon (ASX:AZJ), if only because the public market shuns such Esg-unfriendly stocks. Stock picker Forager Funds reckons the healthcare sector is ripe for picking. Chief Forager Steve Johnson picks Integral Diagnostics (ASX:IDX), which looks cheaper than the private P RP Diagnostic Imaging recently acquired by IFM Investors and Unisuper.

For our two bob’s worth,

Transurban (ASX:TCL)

looks a no-brainer for a longterm investor such as a super fund, because its monopoly assets can’t be replicated and its tolls are linked to inflation.

We’ll also keep a weather eye on Star Entertainment (ASX:SGR), given the equally troubled Crown Resorts was taken over by Blackstone for $9bn cash.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.