M&A set to soar in boon for lawyers

Merger and acquisition activity looks set to flourish as long-awaited mega-deals emerge, buoyed by the low Australian dollar, lower financing costs and an abundance of opportunities.

Top-end firms are not the only beneficiaries, as upstart boutiques muscle in on the action, taking advantage of an increasing client preference for individual quality lawyers over firm brand.

The latest Thomson Reuters league table shows a 30 per cent jump in the value of announced deals for the nine months to September 30 compared to the previous period, to $US112 billion.

Heavy hitters in the space Herbert Smith Freehills, King & Wood Mallesons and Allens maintain top rankings, but a look at the mid-market table, which strips out mega-deals, shows a raft of small players entering the field, even if only for a small number of deals.

“There’s a movement away from simply going to a law firm because you’ve gone to them before, or because their brand’s been around for a long time,” said Gilbert + Tobin partner Craig Semple.

“People go to firms to use the individuals there far more than just going to a firm.”

Mr Semple said that the M&A results were more interesting than they had been for a long time. A greater number of mega-deals has masked a marked drop in the volume of deals – in the mid-market, which strips out deals valued above $US500 million, numbers dropped by 159 to just over 1200 deals.

But signs of an uplift across the board were promising, he said, particularly driven by the property and telecommunications sectors.

“I do genuinely think that the last quarter of this year will be stronger by volume than the one just through,” he said. “Certainly I think that the private equity acquisition pipeline is stronger.”

Allens M&A co-head Guy Alexander called the market “extremely hot”, underridden by activity in the infrastructure sector, particularly from privatisation projects. “We are as busy now as we have been since the boom times,” he said.

Allens is acting for Oil Search in the potential $10.2 billion Woodside Petroleum takeover, along with other deals such as the $2.5 billion Equifax bid for rival data management company Veda.

Pressure to drive growth

“There is still pressure on boards to drive growth somehow, and organic growth is hard to find in fairly developed markets, so that drives M&A,” he said. “When boards start to see other companies doing M&A they feel more confident – it’s self-fulfilling in many ways.”

HSF partner Simon Haddy said the uptick hoped for a year ago, when the Aussie dollar was tracking low, as were financing costs, and opportunities were opening in the market, probably didn’t eventuate for the first half of 2015.

But the second half has seen the trends manifest in an increasing deal flow, he said, such as the $1.7 billion Swisse vitamins deal.

“Private equity deals are increasingly prevalent. They’ve probably not made their way into the public domain yet, but we think the signs are positive.”

Brisbane boutique Talbot Sayer Lawyers, which soared up the mid-market charts to take fifth place by deal number, has seen M&A activity driven by long-term strategic buyers from Asia, particularly in agribusiness in a bid for food security.

“We haven’t acted for any foreign buyers but we’ve seen a lot of activity, particularly in the cattle space,” said Talbot Sayer partner Tim Sayer.

Mr Sayer said that M&A activity should have been at all-time highs due to the economic conditions in the past year. That didn’t happen – perhaps in part due to the uncertainty in government changes over the past five years, he said.

But he said Prime Minister Malcolm Turnbull, despite causing another change, had a positive flow-on effect in business confidence.

The firm has a strong focus on private equity deals, which Mr Sayer said had been strong and countered the general trend, insulating the firm.

Thomson Reuters global head of capital markets & advisory Leon Saunders Calvert said Australian M&A activity reflected the “slight uncertainty in the Asia-Pacific markets in 2015”.

“Ongoing access to funding and insight into the likely impact of China outfall in the wider region will be the determining factors in CEO confidence for continued deal activity going into the end of the year and into 2016.”

 

Australian Financial Review – 15 October 2015