Advisers should give clients ample time to assess any opportunities to take part in transactions this year, as good quality, rather than a large number of deals, is expected to come to market across 2017.
Nicholas Guest, a partner with corporate advice firm HLB Mann Judd, says in this environment it’s important for advisers to conduct thorough due diligence on transactions on behalf of their clients.
“Deals need to be analysed and scrutinised in detail. And prepare clients early to avoid deal shock,” he says.
Guest is expecting a larger volume of IPOs this year than in recent history. At the time of writing, there were almost 30 upcoming floats listed on the ASX’s website. New listings are anticipated across a range of industries, including mining, technology and health.
Guest expects technology listings to dominate in 2017 and mining services companies could also pique the interests of IPO investors.
“While there has been a slowdown in the sector, there is still investor interest for good businesses,” he says. “Coal is also a focus as a commodity. Its price has started to bounce. So while the deal space is quiet, interest is starting to come back. There could also be deals in the agriculture and food sectors this year. And more mid-size and large transactions will come to market.”
Guest says more stringent listing rules and the Australian Securities and Investments Commission’s heightened focus on the suitability of new listings for the public markets led to fewer small companies listing over the past few years. As a result, there have been scant small companies for investors to take an interest in and a relatively high number of mid-market and large company listings.
Indeed, it is hoped this year will be a strong one for transactions, on the back of relatively good results last year.
Finance research group Mergermarket’s latest data on the local transaction market states that last year there were 487 transactions, totalling $86.7 billion. It was the best year since 2010, when the value of deals reached $98.1 billion.
A pipeline of deals in the second half, to the value of $58.6 billion, helped support the market. Only $28.1 billion in deals was achieved in the first half.
The three biggest deals for the year were Ausgrid’s sale to a consortium of super funds, Asciano’s takeover by Qube, and the sale of the Port of Melbourne.
Transport was the most active sector for transactions, followed by energy and mining and utilities. Mergermarket’s report notes that, in 2016, “Deals across energy, mining and utilities more than doubled those seen in 2015, swelling to $25.3 billion.”
For 2017, Mergermarket predicts the outcome for the M&A market will largely be determined by the political scene in Western Australia. Should the Liberal Party win the March election, this should support a stream of privatisation deals in the west, for instance with Western Power and Horizon Power.
Elsewhere, low interest rates and an improving economic outlook should support the transaction market through 2017.