Chapter 5 of Gilbert + Tobin’s 2021 Takeovers + Schemes Review explores the types of consideration offered in public mergers and acquisitions in 2020.

In summary:

  • The preference for cash consideration significantly decreased in 2020, with the percentage of transactions comprising all cash consideration falling from 83% in 2019 to 62% in 2020.
  • There were seven transactions which offered target shareholders a fixed combination of both cash and scrip.
  • The number of transactions establishing new acquisition facilities (predominantly, secured debt facilities) decreased significantly from 62% in 2019 to 27% in 2020, despite record low interest rates.
  • In our view, the incidence of more scrip only transactions and less leveraged deals in 2020 was an aberration due to natural conservatism arising in uncertain times combined with relatively strong share prices. However, now that confidence has returned, together with high private equity activity, we expect to see a return to more cash deals and greater use of debt acquisition funding.

Use of cash consideration in public mergers and acquisitions decreases

Only 62% of public mergers and acquisitions transactions in 2020 gave target shareholders the opportunity to receive all cash consideration. This is a significant fall from 2019, where 83% of transactions offered all cash consideration or an all cash option, which was the highest percentage identified in ten years. In recent times, the only year which saw a lower use of cash consideration was 2015, where only 61% of transactions offered cash. This reduction in cash consideration is likely to have been driven by the COVID-19 pandemic’s economic ramifications which created a preference for many companies to strengthen their balance sheets, retaining cash for liquidity and risk purposes.

Interestingly, schemes and takeover bids had similar percentages where all cash consideration was provided. 61% of schemes involved cash consideration, a substantial decrease from 2019 where 88% of schemes offered all cash. In contrast, use of cash consideration in takeover bids increased slightly to 63%, up from 57% in 2019, although still down from 82% in 2018.

Of the largest five successful transactions announced in 2020, three offered all cash and two offered scrip.

The largest all cash deal announced was Coca-Cola European Partners’ proposed $9.8 billion acquisition of Coca-Cola Amatil by scheme.

Northern Star Resource’s $5.8 billion acquisition of Saracen Mineral Holdings was the largest successful transaction using a scrip consideration structure.

Combination consideration makes a comeback in Australia

There were seven transactions which had a consideration structure which offered target shareholders a fixed combination of both cash and scrip with no all cash alternative. This constituted 17% of transactions announced in 2020, which was similar to 2017 but was a significant increase on 2019 where no transactions offered a fixed combination of cash and scrip.

There were five transactions in 2020 which gave shareholders the option to elect either scrip or cash consideration. This included the successful acquisition by Pacific Equity Partners of The Citadel Group by scheme of arrangement, where target shareholders could elect either:

  • cash consideration of $5.70 per Citadel share or 1 Class B Pacific Group Topco Ltd share per Citadel share (subject to scale-back); or
  • a mix of scrip for 50-100% of their Citadel shares and cash for the remainder.

62% of transactions in 2020 offered all cash consideration, the green bar shows 21% of transactions in 2020 offered scrip and the yellow bar shows 17% of transactions in 2020 offered combination consideration

Position on stub equity settled in Australia

Two transactions in 2020 involved a stub equity option in the consideration structure, being:

  • BGH Capital’s $586 million acquisition of Village Roadshow; and
  • Pacific Equity Partners’ $449 million acquisition of The Citadel Group.

In 2020, ASIC released ASIC Corporations (Stub Equity in Control Transactions) Instrument 2020/734, confirming new restrictions and guidance on the use of stub equity offers in takeovers and schemes. In addition, ASIC confirmed its ban on the use of Australian proprietary companies as stub equity vehicles, however, public companies with compulsory custodian arrangements are still permitted. More on this in Chapter 9 - The regulators of public mergers and acquisitions in 2020.

M&A consideration structures

$9.8 billion Coca-Cola Amatil / Coca-Cola European Partners  Cash
$5.8 billion Saracen Mineral Holdings / Northern Star Resources Scrip
$2.7 billion Alacer Gold / SSR Mining Scrip
$2.4 billion Cromwell Property Group / ARA Asset Management Cash
$1.2 billion Metlifecare / EQT Cash
$893 million Infigen Energy / Iberdrola Cash
$694 million OptiComm / Uniti Group Combination
$597 million WPP AUNZ / WPP – Current Cash
$586 million Village Roadshow / BGH Capital Cash with stub - equity
$566 million Cardinal Resources / Shandong Gold Cash
$199 million Spectrum Metals / Ramelius Resources Combination
$175 million Universal Coal / TCIG Resources Combination
$115 million OneVue Holdings / Iress Cash
$64 million Exore Resources / Perseus Mining Scrip
$59 million Vault Intelligence / Damstra Holdings


Innovative consideration structures in public mergers and acquisitions

The economic uncertainty resulting from the COVID-19 pandemic led to the creation of innovative consideration structures in a number of transactions during 2020, with BGH Capital leading the charge.

Village Roadshow

The first was the acquisition of Village Roadshow (VRL) where instead of reductions in scheme consideration on the occurrence of certain events, BGH Capital proposed contingent consideration uplifts tied to the occurrence of certain pandemic-related events by a specified date. The transaction structure of the BGH / Village deal comprised two structures which proceeded as concurrent transactions (Structure A and Structure B) in order to sure up the transaction certainty (as certain shareholders could not vote on Structure A).

Initial Consideration Structure under Structure A and Structure B

  Structure A Structure B
Base Amount Base offer $2.20 Base offer $2.10

VRC Shareholders (controlled by / affiliated with the CEO, Chair and proposed Co-Chair, representing approx. 40% of VRL): shares (up to 100%) + cash

Non-VRC shareholders:

  • all cash;
  • 50% cash and 50% shares; or
  • 100% shares

All shareholders, including VRC Shareholders, having the option to receive all cash or elect to retain their VRL shares


Theme Parks Uplift – Additional offer price of $0.12 per share - would be paid if theme parks are open to the public for a period of five Business Days ending at 4pm on the day that is two Business Days prior to the Proxy Cut-Off Date (the last day proxies must be lodged for the Scheme Meeting)

Cinema Uplift – Additional offer price of $0.08 per share - would be paid if a majority of the Cinemas business locations (representing 75% of Cinemas business revenue in FY19) are open to the public for a period of five Business Days ending at 4pm on the day that is two Business Days prior to the Proxy Cut-Off Date and there are no significant changes to the expected movie slate for the remainder of FY21

Border Uplift – Additional offer price of $0.05 per share - would be paid if there are no border control measures imposed by the Queensland Government prohibiting entry from New South Wales as at 12 noon on 15 October 2020 and from Victoria on 31 October 2020

The three uplifts incorporated into the consideration structure reflect how Village’s business was impacted by COVID-19 and the consequential economic downturn. The theme parks uplift was enlivened due to the re-opening of Warner Bros Movie World and SeaWorld on the Gold Coast. As Queensland border restrictions remained in place in October and there had been a deferral of major film releases, the parties agreed that the further potential uplifts would not be payable to Village Roadshow shareholders under the initial consideration structure. Ultimately, that didn’t matter as BGH increased its offer to $3.00 in response to some institutional shareholders seeking a higher price. Structure A was approved by shareholders and the Court.

Abano Healthcare

The second transaction offering an innovative consideration structure was the acquisition by BGH Capital (in consortium with OTTP) of Abano Healthcare Group. Although the target was NZX listed (and therefore not part of our data set which focuses on ASX listed targets), the transaction is worth noting briefly as it was put forward after an earlier agreement was terminated through a material adverse change trigger due to the onset of COVID-19 (see Chapter 8 - Implementation agreements and bid considerations in public mergers and acquisitions in 2020). 

The parties entered into a revised scheme which removed the right (contained in the previous scheme) for BGH Capital to terminate the scheme if a ‘material adverse change’ occurred. Instead, the scheme price was subject to specified price reductions, up to a maximum of 75 cents per share, if any one of the following defined adjustment events occurred:

Description of Adjustment Event

Amount of price reduction (per share)

NZ Pandemic Adjustment Event

>30 cents

Queensland Pandemic Adjustment Event

20 cents

NSW Pandemic Adjustment Event

15 cents

One-Off EBITDA MAC Adjustment Event or an Asset MAC Adjustment Event

30 cents

Recurring EBTIDA MAC Adjustment

55 cents

Regulatory Adjustment Event

15 cents

Sources of funding

The chart (below) shows that the cash consideration for public M&A came from a variety of sources.

While the majority of bidders continue to fund their acquisitions using at least a portion of existing capital, the number of transactions establishing new acquisition facilities (predominantly, secured debt facilities) decreased significantly from 62% in 2019 to 27% in 2020. This may have been heavily influenced by the uncertainty present throughout the majority of the year as businesses sought to maintain conservative balance sheets.

Perhaps unsurprisingly, there was an increase in the proportion of bidders undertaking equity capital raisings to fund their acquisitions, up from 6% in 2019 to 18% in 2020. This is likely due to a desire to maintain lower levels of debt, retain a strong balance sheet position in the midst of the COVID-19 pandemic and take advantage of relatively strong share prices. The ability of Australian companies to raise equity funding on accelerated basis in our capital markets regulatory regime undoubtedly helped as well.

existing reserves / corporate facilities were used in 67% of transactions in 2020, while new acquisition facilities were established for only 27% of transactions.

Larger deals continue to use a mix of funding sources. For example:

  • Cromwell Property Group / ARA Asset Management - $2.4 billion funded from existing cash reserves and debt facilities as well as an equity raising
  • Metlifecare / EQT - $1.2 billion funded from a drawdown of existing equity commitments
  • Infigen Energy / Iberdrola - $893 million funded from existing cash reserves
  • OptiComm / Uniti Group - $694 million funded from existing cash reserves and debt financing