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Australia to eclipse 14-year M&A record, powered by infrastructure, resources deals

Australia to eclipse 14-year M&A record, powered by infrastructure, resources deals

FILE PHOTO: BHP's logo is projected on a screen during a round-table meeting with journalists in Tokyo, Japan, June 5, 2017. REUTERS/Kim Kyung-Hoon/File Photo

HONG KONG : Australia is set for its best year ever in M&A activity despite extended pandemic-induced lockdowns in its most populous states as cash-rich corporates and funds scoop up assets, with bankers seeing no sign of the momentum slowing.

Deals involving Australian companies totalled US$329.2 billion in the first nine months of 2021, up nearly six times year-on-year and exceeding the same-period amount of the previous three years combined, Refinitiv data showed. The previous annual record was US$139 billion in 2007.

The volumes were driven by a number of mega deals targeting listed infrastructure and resources firms.

Those included BHP Group's proposed US$86 billion unification of its dual-listed company structure and the US$14 billion sale of its petroleum business to Woodside Petroleum.

Infrastructure assets in Australia were particularly attractive to superannuation and pension funds, which are eager to deploy their low-cost capital for stable, long-term gains, bankers said.

"Investors into semi-regulated infrastructure assets have high confidence in the future cash flows of the assets they are buying," said Nick Sims, Goldman Sachs' Australia co-head of investment banking.

Goldman led the league table for announced M&A deals in Asia Pacific, followed by Morgan Stanley and UBS.

"Rates are going to stay low for the foreseeable future, if they do increase it will be at a slow pace, so infrastructure investors are investing with a long-term time frame," Sims added.

The deals were struck while many states in the country have been in and out of strict lockdowns since the onset of COVID-19.

"The lockdowns and the uncertainty around the demand side has really led corporate leaders to take a strategic reset of sorts," said Alex Cartel, Citigroup's Australia head of investment banking.

"You had a number of corporates, private equity funds, sovereign wealth funds with access to capital markets, that had strategic ambitions that have said let's get going."

'PENT-UP DEMAND'

Deals targeting Australian companies, at US$200 billion, made up 20per cent of the region's overall value, the second highest after China, compared to just 4per cent in the same period last year, according to Refinitiv data.

Tom Barsha, Bank of America's co-head of M&A in Asia Pacific, said Australia represented "a real shift" in the overall relative contribution to Asia Pacific volumes.

"There are a number of factors all coming together, including some pent-up demand from last year. Also noteworthy is the level of cross-border inbound activity. I'm not seeing signs of activity slowing down."

U.S. payments firm Square Inc made the year's biggest foray into Australia in August with the US$29 billion acquisition of local fintech firm Afterpay.

Overall Asia Pacific deals reached a record US$1.25 trillion from January to September, up 46per cent year-on-year, with Southeast Asia and private equity-backed transactions also scoring new highs, Refinitiv data showed.

Samson Lo, head of Asia M&A at UBS, said more assets owned by private equity firms were set to be put on sale, while mergers between special-purpose acquisition companies (SPACs) and their targets would likely be another volume driver.

"In addition, China could well come back with outbound deals by state-owned companies," he said. "2022 could well be another blowout year for M&A."

(Reporting by Kane Wu and Scott Murdoch; Editing by Sumeet Chatterjee and Muralikumar Anantharaman)

Source: Reuters

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