“2021 could well see the volume and value of deals continue to grow,” the firm’s corporate head says
2020 has been a rocky year for M&A, but a recent report by Corrs Chambers Westgarth offers a rosy outlook on the field in the coming year.
“Despite a challenging year, our research indicates that 2021 could well see the volume and value of deals continue to grow. We are already witnessing this uptick in activity and while some industries and sectors are seeing a faster rebound than others, early indications are that the wider public M&A market will continue to strengthen over the coming months,” said head of corporate Sandy Mak.
Corrs’ M&A 2021 Outlook report outlined important trends in M&A based on research conducted over the 12 months to 30 September. While the volume and value of deals conducted plunged to their lowest since 2016 as a result of the COVID-19 pandemic, the firm pointed out that deal volumes began recovering strongly beginning June.
In addition, the report highlighted “a rapid escalation in M&A levels and an increase in creativity in pricing and speed in closing deals, while also highlighting the critical need for support from target shareholders,” the firm said.
“Conditions also appear to be set for a continued rise in equity prices as a result of the ongoing influx of capital into Australian equity markets, making it imperative that bidders employ strategies to move quickly on M&A transactions,” Corrs said.
Moreover, in spite of restrictions to foreign investment and border closures, deals involving foreign bidders skyrocketed since April. However, the volume of China-based bidders continued to drop, with only one such deal announced over the research period.
Over 70% of deals valued at over $500m were structured as takeovers; Corrs said that this represented a marked increase from previous years, when takeover offers were generally more common at the lower end of the market. The firm attributed this in large part to “increased competition for assets through rival bids.”
Major takeover deals completed during this period included Iberdrola’s acquisition of Infigen – a transaction guided by top firms Gilbert + Tobin and DLA Piper.
An article in The Financial Times indicated that the uptick in takeovers was spurred by optimism regarding Australia’s economic recovery in relation to its strong COVID-19 response measures. Q4 2020 is “already one of the strongest in two decades,” with dealmakers compensating for the period in which activity slowed due to the pandemic, the Times said.
Citi Australia investment banking head Alex Cartel told the Times that the massive pick-up in Q4 2020 numbers is a trend he expects to observe going into the new year.
“It’s the belief that earnings will rebound to pre-COVID-19 levels in the near term,” Cartel said, coupled with “the fact that capital markets are open for funding at attractive levels.”
Meanwhile, Allen & Overy’s M&A Insights Report Q3 2020 said that COVID-19 has the global M&A market leaning towards buyers’ advantage in the immediate future, but as competition heats up for COVID-19 robust assets, this advantage could shift back to sellers again.
“For now, we are seeing both sellers and buyers opting for bilateral deals that pre-empt the traditional auction process,” Allen & Overy said.
