2015 saw fewer deals but much bigger deals – there was a drop of almost 27% in the volume of public M&A deals above $25 million compared with the previous year – but a significant increase in overall deal value. Transportation and real estate emerged as active sectors following another year of reduced M&A activity in the resource sector.
Total deals above $25 million
Our review also showed:
- While resource sector deals1continue to represent the largest proportion of our sample in 2015 at 37.5%, this was a significant reduction from the previous year.
- Overall deal value was up 23% from 2014 but this was on the back of far fewer deals. Our deal sample included 11 "mega deals" (deals over $1 billion) with large deals in the transportation, real estate, commercial services and telecommunications sectors. Although the "average" deal value across the entire sample was over $1 billion, this figure is skewed by the top 10 deals comprising around 85% of the overall deal value.
- After significantly increased public M&A activity from foreign bidders in 2014, Australian bidders regained some ground in 2015 representing 47.5% of bidders in our deal sample.
The slowdown in resources continues
- Resources once again dominated our deal sample, but to a lesser extent than in previous years. Deals in metals and mining represented only 25% of our deal sample and deals in the energy sector comprised only 12.5% of the sample in 2015. This represents a significant decline from the strong activity in these sectors in 2014. Activity in the resource sector was focused at the smaller end of the market – the average deal value for the resource sector was $264 million compared to the average outside this sector of $1.7 billion.
- In contrast to 2014, our results show a tilt towards gold over other commodities in 2015. Transactions involving gold miners made up 36.84% of this year's resource deals, with copper coming in second at 21.05%. As predicted in last year's review, commodity price weakness and cost pressures drove further consolidation in 2015. We expect this trend to continue in 2016, particularly with respect to gold. The continued volatility in global bulk commodity and oil prices is likely to continue to disrupt traditional M&A in the resource sector in 2016. We expect that consolidation through acquisitions will be supplemented by a growing number of private equity investments focused on turnaround restructuring opportunities, recapitalisations and the "haves" merging with the "have nots."
Transport, real estate and telecommunications – where the action is
Outside of resources, in 2015, the transportation, real estate and telecommunications sectors were the subject of considerable public M&A activity:
- With Japan Post's acquisition of Toll Holdings and the ongoing takeover battle for Asciano, the transportation sector claimed the largest average deal value of $6.7 billion for 2015.* We anticipate that transport and infrastructure assets will continue to be of interest to prospective buyers, particularly foreign investors (such as major pension funds) which are attracted to long-life assets which offer stable cash flows.
We expect to see foreign buyers looking for Australian-based companies with good connections in the logistics sector, especially where they have South East Asian operations.
- The Australian real estate sector opened strongly in 2015 with early proposals for the Novian Property Group and Australian Industrial REIT (Real Estate Investment Trust), both of which were ultimately successful and ended with the $2.5 billion proposal by Dexus for the Investa Office Fund2 which was ongoing at the time of writing. In 2016 we also expect continued interest from Asian buyers and sovereign wealth and pension funds looking to buy into the Australian property market. It may be that some of the smaller and more specialist REITS (for example, hotels, healthcare, education and childcare and storage facilities) will be targets for consolidation. Local REITS will also be looking at M&A as an opportunity for growth in an increasingly competitive internal and external environment.
- The high profile consolidation in the domestic telecommunications industry led to two "mega-deals" (over $1 billion) in the telecommunications sector in 2015 – TPG Telecom's acquisition of iiNet ($1.4 billion) and the merger between Vocus Communications and M2 Telecommunications ($1.8 billion). Further cost-cutting and consolidation in this sector is likely to continue well into 2016.
1 "Resource Sector" includes the
mining, metals and energy sector.
2 Note that this deal, which is proposed to be effected as a trust scheme, has not been included in our deal sample.
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