Market confidence boosts M&A following bumper quarter

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The latest Allen & Overy Global M&A Insights report has predicted that M&A markets will continue to grow over the second half of this year.

Australia saw a pick-up in financial services deals over the last quarter; following Warren Buffet’s Berkshire Hathaway group make an USD500m investment in Insurance Australia Group and the National Australia Bank USD4.4bn rights issue, including major plans to demerge parts of its UK operation.

“The nature and quality of the Australian transactions in the public domain and also in the pipeline are strong,” said Allen & Overy partner Michael Parshall.  “While we are missing a bell-ringer, such as the USD53bn Time Warner Cable / Charter Communications transaction, the last quarter saw three deals valued at over USD5bn and we are expecting that, with privatisation and infrastructure processes underway, this strong momentum will continue.”

The report found that smaller cross-border activity within the region continues to be driven by Japanese investors, with Indonesia and India predicted to be key drivers this financial year.  Parshall said despite this, interest in the Australian market should remain.

“Australia has consistently been an attractive destination for investment capital.  As the Australian dollar re-weights back to traditional levels, increasing levels of direct and indirect foreign outbound capital are being deployed in markets such as Australia, which fit their investment profile given its stable investment regime,” he said.

“This has added real depth and contestability to sale processes such as the recent Crown Castle sale (which was ultimately won by a Macquarie Infrastructure led consortium) and the GE money sales process (won by Deutsche Bank, KKR and Varde).  On top of that, transactions such as the Japan Post acquisition of Toll have added a level of confidence to the market.”

Consistent with global trends, the telecommunications market has been active last quarter but according to Allen & Overy partner Michael Reede, this is unlikely to continue.

“In the telecommunications sector we have seen continued consolidation of the next tier of carriers beyond Telstra and Optus to enhance their network scale and national presence,” said Reede.

“However, the number of potential consolidation targets is reducing so this trend is likely to moderate in future years.”

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