Quarter In Review
The first quarter of 2019 picked up where 2018 left off – increasing confidence in the public M&A market, reflected in the number of deals announced and executed in Q1 2019.
On the other hand, ECM conditions remain tricky (particularly for mid-to-large cap IPOs). After the dust has settled on the Federal Election, we expect the strong M&A market will drive equity fundraising in the second half of 2019, with a number of IPO hopefuls hitting funds desks following the financial year end reporting season.
We have noted an increasing trend in the market (particularly with small-to-mid caps) happy to take pre-IPO funding from cornerstones at a discount to IPO valuation as a necessary step in the road towards life as a public company.
In the M&A market, target boards continue to take strong positions in response to control transaction proposals, with a number of boards confidently (and succinctly) knocking back proposals and reaffirming existing growth plans.
We have also noted target response times are shortening, emphatic undervalue statements are prevalent and target directors are less responsive to prevailing ‘street based’ premium arguments. Willing bidders need to plan for well-considered target defence strategies and increasing alignment as to the value of the company between board and management.
M&A and ECM activity in the second half of the year will need to play out amongst an expected shift in regulator behaviour towards a more aggressive stance.
We are delighted to report our ongoing strong performance in M&A by being recognised by WA Business News as the Number 1 M&A legal advisor by deal value on transactions for the 12 months to April 2019. Link to the article here.
Notable corporate finance transactions for the Perth team in Q1 2019 included:
Acting for the BGH Capital led consortium in relation to its proposed $2.3 billion acquisition of global education group Navitas Limited by way of scheme of arrangement, representing the biggest ever private equity buyout by an Australian-based manager.
Panoramic Resources Limited
Advising Panoramic Resources Limited on its $20 million capital raise via placement and underwritten rights issue. The proceeds of the capital raising will be used to provide working capital for the Savannah Nickel Project.
Acting for Canadian Securities Exchange listed Wayland Group on its C$29 million acquisition of a majority interest in a corporate SPV, partnering with leaders in Australia’s cannabis industry in the process.
Australis Oil and Gas Limited
Acting for Australis Oil and Gas Limited on its $30.5 million placement, the proceeds of which will be used to further production in the Tuscaloosa Marine Shale project.
A selection of interesting developments and corporate finance transaction tips for advisers - all in two minutes or less.
Disclosure of equity derivatives
The Takeovers Panel has foreshadowed a change to its existing guidance on equity derivatives. It wants long positions of 5% or more in equity derivatives (including cash-settled equity swaps) to be disclosed by a holder, even if they are not held in the context of a control transaction. This is a departure from its existing position on this issue, where disclosure of these derivative positions was only required where they are held in connection with a control transaction.
The rise of D&O insurance premiums
Through a combination of the Banking Royal Commission and a heightened focus on corporate misconduct, we have seen a notable increase in D&O insurance premiums for listed companies. We are already seeing the impact of this in control transactions, in which targets typically control the procurement of D&O insurance for the entity’s officers post-transaction. Given the material increase in D&O premiums have the potential to form a more significant proportion of the bid price, we are now seeing bidders seeking greater control over the D&O insurance procurement process pre-acquisition.
ATO moves the goal posts on demergers
Since the introduction of the demerger rules in Division 125 of the Tax Act in 2002, Gilbert + Tobin has advised on numerous demergers. Over that time, we have seen a narrowing by the ATO of the scope of the demerger provisions. Most recently, in June 2018, the ATO advised our client, AMA Group Limited, that demerger relief was not available in respect of a proposed transaction. We note the ATO is expected to issue further guidance relevant to the demerger rules later this year and next year in this regard. It is clear that the availability of demerger relief where a demerger is followed by a subsequent sale is now more difficult, if not impossible. Future demergers, motivated by a possible sale, need to be carefully considered in light of the moving goalposts. Link to our article here on this topic.
Confirming our prediction in the second edition of Expert Adviser, we are seeing an increase in the prevalence of warranty and indemnity insurance in the public M&A market – both schemes of arrangement between Spicers Limited / Kokusai Pulp & Paper Co. Ltd, and BGH Consortium / Navitas involved W&I insurance.
Quarterly Publication Review
2019 Takeovers + Schemes Review
We have recently published our 2019 Takeovers + Schemes Review – G+T’s annual review of public M&A transactions valued over $50 million. It provides our perspective on the trends for Australian public M&A in 2018 and what that might mean for 2019.
Please contact us if you would like a copy. We will also be arranging in person presentations of the Takeovers + Schemes Review in mid-May.
Judicial Review of Takeovers Panel Decisions – Is the Panel Above the Law?
The Takeovers Panel is now an established feature of the Australian corporate landscape. While it is widely considered to have made a substantial contribution to the efficient conduct of control transactions, its decisions haven’t always been free of controversy, and have recently produced another application for judicial review under the Administrative Decisions (Judicial Review) Act. Read more.
- Wesfarmers announced an indicative proposal to acquire Lynas Corporation by scheme of arrangement valuing Lynas at $1.5 billion with a view to supporting Lynas through further capital investment of its downstream processing assets and the Mt Weld ore body.
- Pilbara Minerals has announced its plans to sell up to a 49% stake in its Pilgangoora Lithium-Tantalum Project to help secure funding required for its expansion of the project. Macquarie Capital is advising on the sale process.
G+T in the community
On 23 February 2019, four swimmers from G+T’s Perth office including Corporate Advisory partner Justin Mannolini and paralegal Jack Bannister, arrived at Rottnest Island triumphant but exhausted after completing the 2019 Rottnest Channel Swim, a 19.7km open water swim from Cottesloe Beach to Rottnest Island.
The G+T team ‘Do you have capacity to swim to Rottnest’ made it across the Channel in 6 hours and 50 minutes – placing 181 out of 443 teams and raised $10,055.30 for Beyond Blue! The team is grateful for the support it received and for the G+T community’s generous contributions to Beyond Blue.