More M&A in store for 2020
Rising activity a worry in shrinking market, says analyst
Last year was a big one for mergers and acquisitions on the NZX and more are expected this year as corporates take advantage of cheap funding.
That means more shrinkage for an already-diminishing sharemarket.
“Merger and acquisition (M&A) activity is the biggest concern that we have here at the moment,” Rickey Ward, head of investment strategy at JBWere says.
“A lot of people are struggling to get organic growth, so acquisitive growth becomes the next part of the investment cycle,” he says.
“We have seen parts of that building over the last few years, and it’s hard to see that disappearing over the current year.”
Last year, European private equity firm EQT unveiled a $1.5 billion takeover bid for retirement village operator Metlifecare at $7 a share.
Earlier in the year, online trading platform Trade Me sold to British private equity firm Apax Partners for $2.56b.
In April, Mexico’s Finaccess Capital, through its subsidiary Global Valar, took a 75 per cent stake in
Restaurant Brands NZ at $9.45 per share, for a $881.5 million.
Late last year, BGH Capital and Ontario Teachers’ Pension Plan, unveiled at takeover plan for Abano valuing the company at $150m, or $5.70 a share.
There has been increased M&A activity overseas as well, but it has not been a problem because liquidity is not an issue in the bigger markets.
“Domestically, it’s a bigger problem because of how thin the market is already,” Ward says. “If we lose some of the big names, then it makes the market look thin, and arguably less attractive — and that’s not a good structural story for New Zealand.”
M&A has become the angle for obtaining earnings growth as organic means have become more challenging as a result of a lot of cash in the system and cheap funding.
Acquisitions will continue to grab the headlines in the current year.
“There are going to be more
There are going to be more companies that leave the exchange this year than will enter it. For NZ Inc, it’s not a great outcome.
Rickey Ward, JBWere
companies that leave the exchange this year than will enter it,” Ward said.
He noted takeover targets Metlifecare and Abano.
“And there are plenty of rumours about a number of others.
“For NZ Inc, it’s not a great outcome because capital markets are the intermediary between someone who has money and someone who wants it.
“That’s good for productivity and its good for a lot of other things,” he said.
M&A in Oz
It’s already been a busy New Year for Australian deal making, with mergers and acquisitions activity heating up just after bankers returned from their Christmas holidays.
Australian companies have already announced A$930m ($968m) of transactions this year, up 58 per cent from the same period in 2019, Bloomberg reported.
That’s not counting the latest purchase by Macquarie Group’s infrastructure arm, which signed a deal last week to take over A$3b data centre operator AirTrunk.
The AirTrunk deal, when officially unveiled, could make this the busiest first half of January in at least three years, according to data compiled by Bloomberg.
Last year, it wasn’t until the end of January that Healthscope announced the year’s first big transaction with its A$4.4b sale to Brookfield Asset Management.
Buyout firms have a lot of cash to deploy, which could also keep the dealmaking momentum in Australia strong this year, according to Nick Brown, a Sydney-based managing director at UBS Group AG.
Private equity and superannuation funds continue to chase any assets that have defensive or infrastructure-like characteristics,” Brown said.
“Valuations are high and capital is available.
“You put those things together and that makes for conducive M&A conditions.”
More deals are in the pipeline. Last week, A$8.9b fuel station operator Caltex Australia confirmed a Bloomberg News report it had received interest from the UK’s EG Group.
That could set up a takeover battle with Canadian convenience-store giant Alimentation Couche-Tard, which is considering its next move after Caltex rejected an earlier offer. Any sale of Caltex would be the biggest foreign acquisition of a listed Australian company in more than two years, Bloomberg said.