Forecasts for 2014 deal flow take a turn

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The mood among corporate lawyers is changing as some of the country’s top transactional lawyers reveal surprising forecasts for deal flow over the rest of 2014.

Lawyers will remember that at the end of last year, confidence seemed to be returning to the M&A market. Mergermarket reported a 40% increase in deal flow over the last six months of the year compared to the first half, but lawyers were anxious about whether this would continue into 2014.

A lot of that anxiety seems to have gone, as four of the country’s leading corporate lawyers revealed to Australasian Lawyer how they feel about the market now.

Corrs Chambers Westgarth partner Sandy Mak said conditions appear to be falling into place for a better M&A market.

“We have a reasonably strong equity market; cash interest rates are at a 50-year low; the Australian dollar is down 15% over the last 12 months; and there is pent up acquisition demand,” Mak said.

Herbert Smith Freehills partner Tony Damian said certain developments augur well for the 2014 M&A market.

“Twelve months ago there was a lot of consideration of deals and a lot of people on boards thinking of deals but translating that into announced and completed deals proved to be tricky. Confidence seems to have returned and people are out there doing things.”

Corporate confidence, as distinct from SOE and sovereign wealth fund confidence, is particularly noteworthy. “That’s been the missing link from completed deals before we had a revival of confidence,” Damian said.

Damian added that SOEs were more likely to complete because they took a long-term view and were not as confidence driven. Corporates have been different. “[It takes confidence] for a board to put its name to a public deal,” he said. “[The fact that] it’s the corporates entering the fray and being prepared to execute deals, that’s where we’ve seen the rapid growth in confidence.”

Gilbert+Tobin partner Craig Semple remains ‘cautiously optimistic’.

“We are optimistically expecting a stronger level of deal flow, and certainly the experience of the Gilbert + Tobin team so far this year has supported this view,” he said. “However, this is a cautious optimism - we are not expecting a tidal wave of deals, but hopefully the tide will come in at least up to our knees!”

DLA Piper partner David Ryan added that the prospect of a free trade agreement with China being finalised sometime this year would strengthen foreign investment, helping deal flow.

Ryan also tips a targeting of the small caps. “As a result of the continuing tough market to obtain finance for greenfield projects, we expect to see more strategic acquisitions of small-cap companies, or their assets, by established and well capitalised buyers through friendly transactions,” he said.

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