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Braking hard: Australia M&A deals slump most in a generation

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(Credit: Reuters) Australian Securities Exchange Screen.Australian Securities Exchange Screen.
September 25
2:49 AM 2014

Australian inbound M&A deals declined the most in a quarter of a century as plummeting commodity prices and a faltering local stock market challenged the appetite of overseas investors for the country's assets.

Inbound deals slumped 86 percent to $2.9 billion in the current quarter from April-to-June, according to data compiled by Thomson Reuters. The drop was the sharpest since the third quarter of 1989.

Australia's resources-reliant economy is feeling the pain of China's slowdown, which has helped depress prices of key exportscoal and iron ore. The stock market, which economists had forecast would add 15 percent in 2014, has slipped about 5 percent this month, wiping out most of its gains for the year.

But dealmakers said it was too early to pronounce the M&A boom over, saying buyers were more likely to be shying from larger, more ambitious takeovers because of broad global factors. The recent drop in the Australian dollar to multi-month lows may also tantalize prospective investors looking long-term.

"The big splashy public deals of the first half, we haven't really seen many of those announced in the third quarter," said Rebecca Maslen-Stannage, a partner at law firm Herbert Smith Freehills in Australia who specialises in M&A.

"Our activity levels are still very high, but there's no doubt, with the market having come off, that's spooked a few people," she said.

In the first nine months, inbound M&A deals more than doubled to $32.4 billion from a year earlier, data compiled by Thomson Reuters shows.

Hong Kong-based Cheung Kong Infrastructure Ltd's (1038.HK) $3.7 billion takeover of gas pipeline owner Envestra Ltd and Singapore property group Frasers Centrepoint Ltd's (FRCT.SI) $3.4 billion purchase of Australand Ltd helped nearly double the average deal size of inbound, outbound and domestic deals to $120.9 million from a year earlier.

The number of inbound deals, however, fell 24 percent.

Anthony Sweetman, head of Australia and New Zealand investment banking at UBS AG, said the M&A pipeline still appeared strong and quarterly figures may not reflect the often stilted flow of announcements that can follow months or even years of discussions between firms.

"A relatively small data set over a relatively small period of time does not represent anything other than those specific events," said Sweetman, whose firm did more than half its $15.7 billion worth of M&A for the year in the September quarter.

Total M&As including inbound and outbound deals announced from the start of the year to late September jumped 55 percent to $86.5 billion from a year earlier, the Thomson Reuters data shows.

The outbound deals were dominated by Melbourne-based miner MMG Ltd's (1208.HK) $7 billion purchase of Peruvian mines from British-Swiss Glencore Xstrata (GLEN.L). The biggest domestic deal was Transurban Group's (TCL.AX) $6.6 billion privatisation of state-owned roads.

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