Gilbert + Tobin has released its Takeovers + Schemes Review 2023, which examines 2022’s public mergers and acquisitions valued over $50 million involving ASX-listed companies. The Review provides our perspective on the trends for Australian M&A in 2022 and what that might mean for you in 2023. 


Key Highlights

Strong year overall: a return to pre-pandemic M+A activity levels

2022 saw a fall in public M+A activity levels and deal values compared to the record year of 2021.

Not surprising really. 2021 was an outsize anomaly.

Still, 2022 was a very strong year overall for M+A. Deal activity was consistent with pre-pandemic activity levels. There were 41 transactions announced valued at over $50 million – down from 62 deals announced in 2021, but consistent with the 42 deals in 2020 and equal with the 41 deals in 2019. Aggregate transaction value was $45.4 billion in 2022, a third of the unprecedented $130.6 billion deal value announced in 2021, but similar to the aggregate deal values seen in 2017 ($41.4 billion) and 2018 ($48.7 billion).

The outlook for 2023 is uncertain. As interest rates continue to increase to curb high inflation, debt funding for M+A is becoming more expensive and terms less attractive. Asset prices have fallen. It seems there is, in many cases, a widening bid ask spread between buyers and sellers. It looks as though the first half of 2023, at least, will be slower for M+A.

Even so, at the time of writing, at least one of two potential mega deals may proceed, with Brookfield / EIG’s revised $15.3 billion proposal for Origin resulting in discussions progressing towards binding documentation. Meanwhile, although Newmont’s $21.5 billion scrip proposal for Newcrest was rejected the door remains open. If Brookfield / EIG’s proposed acquisition of Origin is successful it could provide some real momentum for M+A in 2023.

Three binding transactions announced in 2022 exceeded $5 billion being the $9.5 billion proposed acquisition of OZ Minerals by BHP, the $8.9 billion acquisition of Crown Resorts by Blackstone Inc and the $6.8 billion acquisition of CIMIC Group by HOCHTIEF AG (albeit starting with a ~78.6% controlling pre-bid stake).

There were six more deals in the $1 billion to $5 billion price range, the biggest of which was the Brookfield-led consortium’s $3.4 billion acquisition of Uniti Group.

Significant interest in energy + resources, professional services and technology sectors

The energy + resources and professional services sectors together made up 56% of the total M+A activity in 2022 by number of transactions.

Private equity’s focus on professional services in particular helped lift that sector from five deals in 2021 to 11 in 2022. A significant number of these transactions involved technology related companies which emerged as attractive targets in 2022 given record or near-record low share prices. Activity levels also reflect the importance of the services sectors to Australia’s economy.

There was a small fall in the number of deals in the energy + resources sector with 12 deals announced in 2022 compared to 14 deals in 2021. However, in terms of aggregate transaction value, it accounted for over a quarter (28%) of deals in 2022. Interest in resources companies, including those in future facing minerals, was strong, driven by energy transition and electrification.

Notable transactions in the energy + resources sector included BHP’s proposed $9.5 billion acquisition of OZ Minerals and the three-way battle for Warrego Energy between Beach Energy, Hancock Prospecting and Strike Energy, with Hancock ultimately succeeding.

Activity in the energy + resources sector looks set to continue in 2023, with Newmont Corporation making a multi-billion dollar non-binding indicative offer for Newcrest Mining in February 2023, although it was rejected by the target board, the door remains open. The transition to “net zero” and the Labor government’s target of reducing Australia’s greenhouse gas emissions by 43% below 2005 levels by 2030 will continue to cause significant disruption to energy + resources companies, potentially leading to greater M+A activity.

Interestingly, in 2022 there were no binding deals in the utilities sector. This stands in contrast to the previous year where the utilities sector came in third (16%, with an aggregate deal value of $20.3 billion), powered by the $10.2 billion AusNet Services / Brookfield transaction. However, this may just be a timing anomaly, with Brookfield / EIG’s revised proposal to acquire Origin progressing well at the time of writing and noting Brookfield’s involvement in an earlier proposal to acquire AGL, both of which were driven by energy transition.

Private equity and private capital increasingly key players

Private equity firms and private capital continued to increase their involvement in public M+A, being involved in 14 deals in 2022, up from seven in 2021 and ten in 2020. Indeed, private equity and private capital accounted for 40% of deals by value in 2022, a steady increase from 35% in 2021. The value of private equity transactions more than halved from $44.8 billion in 2021 to $18.1 billion in 2022 but that only reflects the smaller transaction size of the wider market.

As was the case in 2021, private equity was responsible for some of the biggest deals in 2022 (Crown Resorts, Uniti Group, Nearmap, Pushpay Holdings). They also engaged in interesting competitive bidding wars (including the contested bid between private equity houses for Virtus Health).

At least in the case of public M+A, private equity was interested predominantly in the professional services sector (seven transactions, including a number of technology related companies such as Elmo Software and Nitro Software), retail + consumer services (including Crown Resorts and iSelect) and healthcare (notably, the competing bids for Virtus Health).

While higher interest rates and difficult debt markets are expected to reduce M+A activity in 2023, private equity and private capital are not expected to shy away from public M+A when the opportunities arise. Indeed, lower stock market prices may prove to be enticing, particularly where target companies need growth capital and funding. Major global and Australian based firms have continued to raise funds, backed by plentiful pension / superannuation funding. Therefore, we expect private equity to remain very active in this market in 2023 and beyond.

Australian superannuation and foreign pension funds remained engaged

Australian superannuation and foreign pension funds also remained key players in public M+A in 2022. For example:

  • Commonwealth Superannuation Corporation participated in the Brookfield-led consortium’s $3.4 billion acquisition of Uniti Group;
  • AustralianSuper contributed $164 million towards the $275 million capital raise by Genesis Minerals, which was a condition of the Genesis Minerals – St Barbara merger becoming effective; and
  • Dutch pension fund PGGM partnered with Charter Hall for the $1.3 billion acquisition of Irongate Group (with PGGM owning 88% of the bid vehicle).

The involvement and influence of superannuation funds is clearly growing. The Australian superannuation industry has total assets of over $3.3 trillion, making it the fourth largest pension sector in the world. Our compulsory superannuation model will only see the sector’s size continue to grow. Those funds need to be put to work. Therefore, increased activity from Australian and global superannuation / pension funds in Australian takeover transactions, including by way of participation in consortium bids, is certain.

Foreign investment increases from North America and Europe

Deals involving foreign bidders accounted for $26 billion, or 58%, of the aggregate transaction value of all public M+A deals. Foreign bidders were involved in 46% of the total number of transactions, up from 32% in 2021. This reversed the downwards trend since 2017.When coupled with the foreign bidder success rate (94%), Australia remained an attractive foreign investment destination.

Significant foreign bids included Blackstone Inc’s (United States) $8.9 billion acquisition of Crown Resorts, HOCHTIEF AG’s (Spain) $6.8 billion acquisition of CIMIC Group, Cooke Inc’s (Canada) $1.1 billion acquisition of Tassal Group and Thoma Bravo’s (United States) $1.1 billion acquisition of Nearmap. In 2022, the sectors most attractive to foreign bidders were also professional services and energy + resources.

Foreign interest was predominantly from North America and Europe. Interestingly, no formal bids were made by Asian companies. Since the tightening of foreign investment regulatory oversight in recent years, there has been an increasing trend to investment from Western countries. However, in 2022, North American, particularly US, investment in Australian assets soared. North America accounted for 33% of investment in 2022 (14 deals), compared to 15% in 2021 (nine deals) and 10% in 2020 (four deals). This represents a return to pre-pandemic levels, when North America accounted for 32% of investment, by number of transactions, in 2019.

Deal structures evolve to facilitate competitive bidding

In a developing market trend, concurrent scheme and takeover structures (with the takeover having a 50.1% minimum acceptance condition) were undertaken as a means of overcoming the advantage of a first bidder with a pre-bid stake. These included Alludo’s proposed $541 million acquisition of Nitro Software and CapVest Partners’ failed $711 million acquisition of Virtus Health.

In both Virtus Health and Nitro Software, the availability of this structure facilitated a second bidder entering the auction when it might otherwise have been deterred by the existence of a likely blocking stake for a scheme held by the first bidder. As a result, the premium achieved for shareholders was significantly higher than that which might otherwise have been obtained by negotiation with the first bidder in the absence of any competition. With the Takeovers Panel recently considering and confirming that a concurrent takeover / scheme structure is not unacceptable (see pages 50 to 51 for more detail), these structures are likely to continue to be used to facilitate competitive bidding where the first bidder has a significant pre-bid stake. We expect to see them used, or at least proposed, more often. Perhaps a word of caution though for bidders proposing this structure in that it ultimately proved to be unsuccessful in Virtus Health and seems likely to be unsuccessful in Nitro Software.

We also observed an increase in the use of equity derivatives in M+A transactions. Equity swaps were used to build a pre-bid stake by BGH Capital in Virtus Health and BHP in OZ Minerals, before approaching the target. There were a number of potential transactions in 2022 involving the use of equity derivatives to build a pre-bid stake, including Atlas Arteria / IFM and AGL / Brookfield / Grok Ventures.

Fortune favours the brave

In 2022, hostile bids were more successful than prior years with 67% of transactions starting as hostile bids ultimately achieving success. Hostile bids since 2019 have had a lower than 50% chance of success. This outcome likely results from the fact that most of the hostile bids were in competitive processes. That is, while they may not have been recommended initially, if they were the highest bid at the end of the process, they were subsequently recommended by the target board and so became successful. The originally hostile bids for Virtus Health and Warrego Energy are good examples of this.

So, while a transaction undoubtedly has a higher chance of success if it is recommended by the board on announcement, a bidder might be encouraged by this year’s statistics to proceed without the agreement of the target. It may well be that fortune will favour the brave in 2023.

Busy year for the Takeovers Panel

The Takeovers Panel had another busy year with 24 applications, hearing many cases including those relating to the contested takeover battles for Virtus Health and Nitro Software. It also considered the concurrent scheme / takeover structure, and concluded that the structure itself did not give rise to unacceptable circumstances.

Potential schemes law reform was also an area of focus for the Takeovers Panel in 2022, until the new federal government advised that it would not pursue changes to the regime. The Takeovers Panel also engaged in public consultation on new guidance relating to deal protection and lock up devices and insider participation in takeovers.