Major survey reveals massive M&A deal flow set to continue

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A major survey from global technology provider Intralinks Holdings has revealed that dealmaker sentiment in the Asia Pacific (APAC) M&A market is reaching new highs.

The results were published as part of the Intralinks Global Sentiment Survey, which polled more than 1,000 M&A professionals worldwide in June this year in order to gauge dealmakers sentiments and views on the current state of the M&A market.

Among a variety of perceptions for the APAC area, it was uncovered that 80% of dealmakers in this jurisdiction predict that deal volume will increase over the next six months, compared with 77% globally.

Dealmakers also indicated they are optimistic about the current deal environment in comparison to the previous six months, with 65% saying this is so in the APAC region (compared to a slightly higher 67% globally).

However, deal valuation continues to be the biggest problem in the Asia Pacific M&A space.

Respondents said they believe deal valuation represents a greater challenge to the deal process than other factors such as shareholder activism against underperforming companies, or political interference.

The vice president of M&A strategy and product marketing at Intralinks Matt Porzio told Australasian Lawyer that valuation can quickly become a significant issue and impact on successfully completing a deal.

“If there is a discrepancy in valuation, either on the acquirer or seller's side, it can expose the deal to greater risk and potentially extend the overall deal completion timeline, not to mention create expectation gaps between parties, increase the risk of overpaying for targets, and impact earnings,” he says.

Apart from this challenge, Australasian dealmakers are optimistic about the current deal landscape in comparison with the previous six months, he says.

Porzio predicts that future trends will include measurable growth in shareholder activism campaigns across the board, from corporate governance, dividend distributions and divestiture campaigns.

“We’ve already seen examples of inbound activism from US funds such as Lone Star’s governance campaign against Antares, as well as local funds taking a more involved investment approach, such as Allan Gray. With activists’ returns hovering around the 25% range, we see an influx of funds seeking these market opportunities.”

Law firms should look towards encouraging companies prepare for non-traditional deal structures and tactics that aren’t yet native to the Australasian landscape, he says. While everyone expects to see more deals, the fact that valuation gaps pose the highest risk to execution may see acquirers employing various tactics to creatively pressure corporate balance sheets, boards and valuations.

Herbert Smith Freehills' partner and member of the firm’s mergers and aquisitions team Simon Haddy says the Intralinks results echo what we’re seeing in Australia.

"Australian M&A volumes have surged in the first half of 2014, and pleasingly this development has been seen across a wide variety of sectors and buyers," he told Australasian Lawyer. "Given the continuing high levels of market confidence, the resurgent IPO market, and the availability of debt and equity capital, we believe that Australian M&A will go from strength to strength during the remainder of 2014.”

Earlier this month Thomson Reuters released an M&A legal advisor league table that showed that in H1 2014 the value of announced M&A deals in Asia Pacific totalled US$337.8 billion.
At the time Haddy said there was a significant spread of opportunities for law firms - having seen and continuing to see a healthy IPO pipeline, together with good availability of debt and equity capital.

Thus far the trend has been towards mega deals, or those valued at over A$1 billion. In the 2013 calendar year there were 18 Australian deals valued at over this amount, and at the time of the Thomson Reuters table results report, that had already been surpassed with 22 such deals announced.

“We have an open, stable environment with a lot of very experienced practitioners in a market that is conducive to doing deals, and a market that people want to buy in,” Haddy says.

 

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