Australian public market shows long-term structural shift, HSF says

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Two trends last year show a long-term structural shift in the nature of Australia's public market, Herbert Smith Freehills (HSF) said in a report.

In its “M&A in 2020: The New Normal” report, the global legal giant said that the M&A sector in Australia last year was robust with a high number and value of announced deals, despite a decrease from the heights achieved in the 2018 fiscal year.

HSF said that it observed “a material expansion in the bidder universe,” which drove both deal volumes and values.

The first trend the global firm noticed in Australia was the increased participation of superannuation funds, including AustralianSuper and the Queensland Investment Corporation, in high-profile takeovers, including for Healthscope, Navitas, Pacific Energy, and Superloop.

The firm has also observed that there was a marked uptick in the participation of private equity sponsors in Australian public M&A. They were involved in 20% of the deals in fiscal 2019, compared to 18% in 2018 and 10% in 2017.

There was significant activity in the sectors of financial services; aged care and health; technology, media, and telecoms; infrastructure; and energy and resources, the firm said.

HSF also said that it continues to see escalated regulatory scrutiny. This is partly driven by the Hayne Royal Commission’s findings, but it has now also expanded beyond banking and financial services.

HSF said that it expects a strong M&A sector in Australia in 2020. It said that the abundance of bidders is in part driving increased competition for assets, which will continue the development of new deal technology that balances providing certainty to preferred bidders and the facilitation of auctions.

In terms of deal structures it sees continuing to thrive, HSF singled out “go shop” provisions, process deeds, bidder commitments to support superior proposals, and concurrent schemes and takeovers.

Beyond Australia, HSF expects the M&A market in 2020 to feature more focus on environmental, social, and governance matters. It also expects to see more activity in public-to-private bids, continuing the spike of these transactions in 2019. HSF also said that the rise of political intervention is expected to continue, and that third-party deal disruption will continue to play a key role in dealmaking.