Chapter 1 of Gilbert + Tobin’s 2021 Takeovers + Schemes Review explores market activity for public mergers and acquisitions in 2020.

Market activity in Australia steady in 2020 despite the COVID-19 pandemic and Q4 shows strong upward trajectory

Despite the seismic financial implications of the COVID-19 pandemic, the total number of Australian public M&A deals in 2020 was consistent with deal activity in 2019.

The onset of the pandemic in March 2020 clearly had an initial chilling effect on transactions. However, the ensuing stock market and asset price falls created opportunities. As the world adapted to new norms, those with financial capacity including private equity and companies with strong balance sheets saw it as a time to engage in strategic acquisitions. Indeed, it seems that adversity gave rise to opportunities.

The last quarter of 2020, in particular, benefitted from a strong surge in M&A activity. There was a distinct increase in confidence. M&A is growing from a fertile combination of businesses successfully adapted to remote working, cheap debt funding, rallying of financial markets and the development and rollout of multiple vaccines. These ingredients and confidence continue into 2021, which looks set to ignite increased deal activity throughout the year.

Mergers and acquisitions deal numbers

Examining 2020, in total 42 transactions valued at $50 million or more were announced last year. This represented a slight increase from the previous year (41 deals in 2019) but was still well down from 49 deals in 2018.

Transactions announcements per year by number, the blue column shows deals from $50 to $500m and the green shows deals from $500m+

The number of announced transactions with a value over $500 million slightly increased from 11 in 2019 to 12 in 2020. However, this figure is also significantly down from 2018 where there were 21 high-value transactions (an eight-year high). There were 30 deals between $50 and $500 million in 2020, which was consistent with the previous year.

Mergers and acquisitions deal value

There was a substantial rise in the aggregate transaction value in 2020 with approximately $32.8 billion worth of transactions announced, an increase of 37% from 2019 levels.

Total mergers and acquisition transaction value was $32.8 billion in 2020, an increase of 37% since 2019 but down from the $48.7 billion high in 2018

However, this higher total may not be reflective of an overall increase in public M&A activity. Rather this headline was boosted by two transactions exceeding $5 billion (whereas there were no deals over $5 billion in 2019), being:

  • Coca-Cola European Partners proposed $9.8 billion acquisition of Coca-Cola Amatil; and
  • Northern Star Resources’ successful $5.8 billion acquisition of Saracen Mineral Holdings.

Two transactions exceeding $5 billion, and three transactions between $1 billion and $5 billion, were announced in 2020

In addition, the three competitive bid situations (Infigen, OptiComm and Cardinal Resources) also increased 2020’s aggregate transaction value. Cardinal Resources alone had four competing bidders: Shandong Gold (the successful acquirer), Dongshan Investments, Nord Gold and Engineers & Planners Co.

Foreign bidders still significant players in high value mergers and acquisitions

Four of the five transactions exceeding $1 billion involved a foreign bidder.

This continues the trend from 2019 of foreign bidders being significant players in the highest value public M&A transactions.

That said, overall, the proportion of foreign bids was lower in 2020 compared to 2019 and 2018, likely due to:

  • the tougher foreign investment regulatory settings requiring all foreign acquisitions to be subject to review no matter the size and longer review times (see Chapter 4 Foreign bidders in public mergers and acquisitions in 2020);
  • the challenges of doing cross-border deals in a pandemic where basic due diligence like site visits can be difficult, if not impossible; and
  • a risk-averse approach by all bidders, including potential foreign acquirers. 

Private equity firms in Australia were cautious, but still engaged in M&A deals

Private equity firms continued to be key players in public M&A in 2020. That said, there was a significant reduction in the total value of public M&A deals in the Australian market involving this type of acquirer.

While the proportion of private equity transactions by volume remained identical to 2019, at 24% of all deals over $50 million (10 deals in 2020), private equity bidders accounted for 18% of public M&A deals by value, well down from 44% in 2019 and 28% in 2018.

Private equity firms were interested in a diverse number of sectors, including real estate, financials and utilities with each of those sectors accounting for 20% of the number of private equity deals.

On raw statistics, it seemed that private equity’s interest in the healthcare sector declined significantly, down from 57% by value of overall private equity investment in 2019 to 21% in 2020. However, we consider that to be an anomaly of our data set which focuses on M&A involving ASX listed companies, as clearly private equity sees opportunities in healthcare. Apart from EQT’s acquisition of Metlifecare, private equity activity in this sector is evidenced by BGH Capital’s acquisitions of NZX listed dental group, Abano Healthcare, and the medical centres business of ASX-listed Healius, Madison Dearborn’s acquisition of Advanced Personnel Management and Crescent Capital’s acquisition of PRP Diagnostic Imaging.

Real estate attracted the highest spend from private equity firms with 49% of total investment being in that sector, largely dominated by ARA Asset Management’s $2.4 billion proportional takeover bid for Cromwell Property Group.

Real Estate (49%*)

  • Cromwell Property Group ($2.4 billion)
  • Australian Unity Office Fund ($485 million – withdrawn)

Healthcare (21%*)

  • Metlifecare ($1.2 billion)

Professional services (8%*)

  • The Citadel Group ($449 million)

Retail & Consumer Services (8%*)

  • Village Roadshow ($586 million)

Financials (5%*)

  • E&P Financial Group ($162 million – current)
  • CML Group ($131 million – withdrawn)

Energy & resources (5%*)

  • Stanmore Coal ($256 million)

Utilities (4%*)

  • Zenith Energy ($156 million)
  • Windlab ($68 million)

 *Percentage of PE investment across all PE deals by value

While we distinguish between traditional private equity firms and private capital, there has also been a notable increase in the involvement of private capital, superannuation and pension funds in public company M&A. Key examples in 2020 included:

  • Aware Super’s unsuccessful $676 million proposal for OptiComm; and
  • AustralianSuper’s $5.1 billion non-binding and indicative approach for Infratil (noting our Review does not include non-binding indicative proposals).

Further developments which became public in early 2021 included:

  • CPE Capital and Macquarie Infrastructure and Real Assets (MIRA)’s potential $2.3 billion acquisition of Bingo Industries; and
  • MIRA and Aware Super’snon-binding indicative proposal for Vocus Group.

As Australia’s compulsory superannuation system continues to drive growth in the capital of Australian superannuation funds, there is no doubt we will see increasing involvement of these types of investors in public M&A as they seek to invest this money. Indeed, the greater need for Australian superannuation funds to invest will result in larger investment sizes which will inevitably lead them to listed markets.

Timing of announcements

There was a significant drop in transaction volume in the beginning of the second quarter of 2020 as the impact of the COVID-19 pandemic was felt in Australia. Only two deals were announced in April and May, being:

  • SSR Mining’s $2.7 billion acquisition of Alacer Gold; and
  • Golden Investment’s $256 million acquisition of Stanmore Coal.

The number of deals announced increased each quarter, rising from seven in the first quarter of 2020 to 14 in the fourth quarter, reflecting increased confidence and deal activity

Deal activity picked up after the first wave of the pandemic in Australia had subsided, particularly in June where eight transactions were announced (the most in any month for the year).

Indeed, the number of deals announced increased each quarter, rising from seven in Q1; 10 in Q2; 11 in Q3 to 14 in Q4, reflecting increased confidence and deal activity. M&A is clearly on the rise with a number of potential multi-billion dollar deals involving Bingo Industries, Vocus, Tilt Renewables and Tabcorp already announced in the first 6 weeks of 2021.

Public mergers and acquisition transaction highlights in 2020

$5 billion+

  • Coca-Cola European Partners’ proposed $9.8 billion acquisition of Coca-Cola Amatil
  • Northern Star Resources’ $5.8 billion acquisition of Saracen Mineral Holdings

$1 billion+

  • SSR Mining’s $2.7 billion acquisition of Alacer Gold
  • ARA Asset Management’s $2.4 billion proportional takeover offer for Cromwell Property Group
  • EQT Fund Management’s $1.2 billion acquisition of Metlifecare

$500 million+

  • Iberdrola’s $893 million takeover of Infigen Energy, defeating the competing $835 million bid by UAC Energy
  • Uniti Group’s $694 million acquisition of OptiComm, defeating the competing $676 million proposal by Aware Super
  • Shandong Gold’s $565 million takeover of Cardinal Resources, defeating rival offers from Dongshan Investments, Nord Gold and Engineers & Planners Co
  • WPP’s proposed $596 million acquisition of WPP AUNZ
  • BGH Capital’s $586 million acquisition of Village Roadshow