Competitive bidding to dominate M&A activity

Shareholders are set to be the winners if M&A target companies are able to amplify a trend of competitive bidding to ramp up deal premiums

Shareholders are set to be the winners if M&A target companies are able to amplify a current trend of competitive bidding to ramp up deal premiums.

A report into public M&A activity valued above $50 million has revealed that competitive bidding dominated the lacklustre flow of deal activity in 2013, and that this is likely to continue this year.    
Clayton Utz's The Real Deal 2014 report revealed that stronger equity markets, low cost debt and the return of competition to the M&A arena changed how targets responded to 'bear hug' pressure tactics by bidders, meaning there has been much less scope for opportunistic bids.

Over the past four years, target shareholders in competing bids received an average premium of 65%, compared to an average premium of 44% for all deals.

M&A partner at Clayton Utz, Karen Evans-Cullen, suggests boards should play up to this and maximise competitive tension between bidders in order to attract higher premiums.      

Despite the spike in competitive activity, 2013 was a quiet year for overall M&A activity with the lowest number of deals over $50 million since 2002.  

Last year saw 21 announced deals above $50 million for just 17 targets, and activity levels were down 50% on 2012 and down 65% on 2011.

However, of the 17 targets which received a bid, 23% of them saw a competitive bidding process, with two and sometimes three proposals being announced.
The years of strong M&A activity in the energy and resources sector have also temporarily stalled, as the sector only accounted for 34% of deals in 2013, and only 9% of their total value.      

A decline in the number of foreign bidders in 2013 was also a result of the energy and resources slowdown.  

The obvious side-effect of an increase in competitive bids is that bidders may need to expect to pay more for their targets.  

The Clayton Utz report named infrastructure, agribusiness and real estate as sectors that will likely see continued deal flow, while significant structural or regulatory change in the retail, financial services, media and telecommunications sectors is also likely to prompt M&A activity this year.


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