"We've got a good book of business on," is what Gilbert + Tobin M&A partner Garry Besson said last year shortly after Thomson Financial released its half-yearly results on M&A activity across Australia and New Zealand. That business included Investa Property Group's A$1.5bn takeover bid for Principal Office Trust and the AGL-led consortium's A$3.5bn bid for Loy Yang A power station in Victoria.
G+T was not alone. It was a busy year for M&A practices across the nation, despite predictions the rising Aussie dollar might discourage activity. According to Thomson Financial, M&A activity in 2003 involving an Australian target or acquirer was well up on 2002 levels in both value and volume, with a total of 266 deals worth US$68.03bn - a 65.1% rise. A wide range of sectors dominated activity, including financial services, mining, beverages, property trusts, healthcare and gaming. Big-ticket deals included Tabcorp's A$1.7bn merger with Jupiters, Alinta and AMP Henderson's acquisition of US company Aquila's A$4bn worth of Australian assets (affectionately known in the market as Project Shearwater), AMP's A$10bn de-merger and Burns Philp's A$2.2bn hostile takeover of Goodman Fielder.
Rod Halstead, head of Clayton Utz's M&A team, was one practitioner not surprised by the level of activity, at least in the first half of the year. "The fundamental quality and future global prospects of Australian assets is sufficient to make some Australian businesses remain extremely attractive, even against a rising Australian currency," he said on release of the half-yearly results.
All indications are that last year's level of activity will continue for the foreseeable future. In January, Blake Dawson Waldron partner Byron Koster said the M&A practice already had 40 transactions on its books with a total value of US$12bn and that despite predictions the stronger currency might have a negative impact, the firm was continuing to see a number of inbound US-based acquisitions, also pointing to resurgent interest in traditional technology-based M&A.
The end of last year was slower for Mallesons Stephen Jaques' M&A practice, but partner David Friedlander says business has picked up again. "December wasn't as busy as it has been in previous years but then January came along and 'boom'," Friedlander says. "We had an incredibly busy period and it corresponded not just with there being a lot of deal activity, but with highly complex deal activity." Colleague Alison Lansley says activity in Australia has remained strong despite economic downturns in other regions. "Companies' balance sheets are still in very good shape; interest rates are still quite low; there's plenty of economic demand and there's still plenty of room for a lot of restructuring." Mallesons recently welcomed Tim Bednall, the former head of M&A at Allens Arthur Robinson, to the practice having lost long-time partner Tony Bancroft to the investment banking sector.
AAR is unlikely to feel Bednall's loss too keenly. Its M&A practice has two experienced partners in new joint heads Jon Webster and Ewen Crouch, who lead a 25-strong M&A team nationally. Tabcorp's bid for NSW Tab is one of the major deals on which the firm is currently advising. Crouch, AAR's executive partner for Asia who has spent the past three years building up the firm's regional practice, says his ambition is to land more deals like French-based Schneider Electric's acquisition of Adelaide-based Gerard Industries' core electrical wiring accessories business last year - a A$1bn multi-jurisdictional, privately-negotiated deal. "That's our business plan," Crouch says. The firm advised Schneider on the transaction, with Norman Waterhouse acting as adviser to Gerard Industries.
While Crouch is reluctant to speculate on the likely level of activity in the first quarter of this year, he singles out energy, infrastructure and property as the most active sectors. On the energy front, Duke Energy looks set to proceed with either a trade sale of its estimated A$1.5bn Australian assets or an IPO (Baker McKenzie and Minter Ellison are advising) while Epic Energy is preparing to sell off its pipelines. Further consolidation in the property trust sector is also expected to continue on the back of activity last year.
Freehills partner Braddon Jolley says the rash of IPOs in the latter half of 2003 and this year will ensure ongoing activity. "The great thing about IPOs is that within three years, [the companies] either become targets or they end up going out and buying something themselves," Jolley says. Freehills had an active 2003 on the M&A front, advising Burns Philp on the Goodman Fielder takeover, Centro Properties on its bid for AMP Shopping Centre Trust and CSR on the demerger of the CSR Group. Jolley says recent deals such as the A$636m acquisition of the Australian Trading Post business from Paris-based Trader Classified Media, by Telstra subsidiary Sensis, are a good sign. "With the one reservation about the dollar, which I still have ... I think we're in for a good year."
Mallesons' Lansley is among practitioners who say M&A deals are getting more complex, which means fielding bigger teams. Ross Israel of AMP Henderson says the complexity of the Project Shearwater deal, on which Mallesons advised, meant the firm's ability to run parallel teams to complete key aspects of the transaction in a tight timeframe was critical. "Not being able to resource sufficiently a complex transaction with multiple work streams would impact its successful execution," he says. ALB
Australia's major M&A deals
In the highly regulated gambling sector, Jupiters and Tabcorp merged to create Australia's largest gambling outfit (one of ALB's top 10 deals of 2003). Corrs Chambers Westgarth partner Teresa Handicott led the firm's team in advising Jupiters, while a large team from Allens Arthur Robinson advised Tabcorp and Mallesons Stephen Jaques advised the banks.
The food and wine sectors were also busy. Global food products and ingredients manufacturer Burns Philp's launched a successful hostile takeover of food manufacturer Goodman Fielder (via its wholly owned subsidiary BCP1). Freehills, led by Braddon Jolley and Rebecca Maslen-Stannage, was the adviser to Burns Philp while AAR advised Goodman Fielder. Mallesons advised Credit Suisse First Boston (CSFB) as financial and M&A adviser to Burns Philp. Constellation Brands' A$2.472bn acquisition of BRL Hardy in April last year (Clayton Utz advised Constellation Brands and Piper Alderman advised BRL Hardy), created the world's largest wine business by volume and Swiss-based Hess Group launched a successful takeover of Peter Lehmann Wines (a deal worth A$160m), edging out rival bidder Allied Domecq. Baker & McKenzie represented Peter Lehmann Wines and Gilbert + Tobin advised Hess Group.
In the banking sector HBOS launched an A$2.4bn takeover for the remaining shares in BankWest, a deal which closed in August 2003. This was one of the largest M&A deals in 2003 and Western Australia's largest for some years. Clayton Utz was adviser to BankWest with Mallesons Stephen Jaques representing HBOS (alongside Caliburn and Macquarie Bank).
The insurance industry was also active with Insurance Australia Group, advised by Mallesons, acquiring CGU and NZI for A$1.855bn from the UK's Aviva (represented by Minter Ellison). In the healthcare industry Mayne Group sold off its hospital business (comprising 50 hospitals in Australia and three in Indonesia) to a private equity consortium in an A$813m deal which closed on 21 October 2003. Clayton Utz, led by Rod Halstead, advised Mayne.
Another notable deal was the Australia Wheat Board's A$825m acquisition of Landmark from Wesfarmers, positioning itself as the leading agribusiness in Australia. The transaction took the market by surprise and was negotiated within a tight two-month timeframe. Blake Dawson Waldron represented AWB, with adviser to Wesfarmers. ALB
Schemes of arrangement
They were meant for companies in trouble. Now schemes of arrangement are more commonly used in takeovers, although practitioners claim that schemes won't overtake the traditional bid as a takeover method anytime soon.
A scheme of arrangement refers to the reorganisation of a company's capital base. In the case of AMP, for example, its demerger involved dividing AMP shareholdings into shares in two listed companies instead of one.
A number of recent M&A deals have used schemes - the Jupiters/Tabcorp merger, Xstrata's takeover of MIM, Freedom's recent management buyout, HBOS' takeover of BankWest and Constellation Brand's acquisition of BRL Hardy.
Freehills' Jolley says while the number of schemes might be on the rise, their use is nothing new. "Some of the financing that's getting more complicated would suggest that people are going to use schemes more often than bids. But you don't get much more complicated financing than the Burns Philp bid for Goodman Fielder, and that was done in a hostile bid," Jolley points out. "There are transactions where schemes are just suited but I don't see schemes taking over."
AAR's Crouch says schemes are being adapted more broadly after initially being limited to the financial services sector but "that's what the law says schemes can be used for". He does not agree with critics of schemes who say they don't maximise shareholder value. "Every method has its downsides," Crouch says. "The voting mechanisms of schemes canvasses a very broad group of membership and investment in any enterprise and provides both the target company and the bidder with certainty as to outcome."
The China factor
Increasing levels of investment between China and Australia on the back of efforts to forge closer economic ties are already bearing fruit for M&A practices.
Mallesons and Freehills have both advised on the first off-shore investment in a major overseas power generating asset by a mainland Chinese enterprise - China's Huaneng Group's US$227m acquisition of a 50% stake in OzGen, the holding company for InterGen's Australian power generation assets. Hong Kong-based Mallesons partner Robert Milliner, who led the firm's team advising Huaneng, says the company's investment reflects the strengthening of Sino-Australia ties and the nature of the deals coming on the back of the A$25bn North West Shelf Venture LNG export deal. "From an Australian perspective [this] must be seen very positively," Milliner says.
AAR's Crouch says China-related investment is an important part of the firm's practice. AAR is advising Bluescope Steel on its estimated A$280m investment in China (via construction of a new flat steel metallic coating and painting facility in Suzhou Industrial Park in China's Jiangsu province, west of Shanghai) and also represents Rio Tinto and the Hamersley Group in connection with their interests in iron ore - increasingly in demand from the PRC. "The work for Chinese investment in Australia is something that we're also very interested in," Crouch says. "There's substantial investment both ways."
The big league
The release of M&A league tables always sparks a frenzy of press releases from law firms trumpeting their success over their competitors - based, naturally enough, on a reading of the results most favourable to them.
Take Thomson Financial's 2003 tables. AAR claimed the leading law firm crown on both announced and completed deals with Australia/New Zealand involvement. The firm worked on 45 transactions worth US$27.95bn and 41 advisory transactions valued at US$25.22bn.
Mallesons, however, advised on more deals - 52 announced transactions worth US$21.24bn and 51 completed at US$23.49bn. The firm also led the rankings for completed deals by value involving an Australian/NZ target, advising on 48 deals worth US$17.76bn. It came in third, however, on announced deals by value involving an Australian/NZ target, with 48 transactions worth US$14.58bn. Clayton Utz took the top spot, handling 46 announced transactions totalling US$18.26bn.
Clayton Utz ranked third in the announced and completed involvement tables, advising on 46 deals totalling US$18.26bn and 41 completed deals valued at US$13.76bn.
Blake Dawson Waldron and Freehills claimed fourth and fifth spots respectively in the announced deal by value rankings (Australia/NZ involvement), with the positions reversed in the completed deal tables. Dropping down three places on its 2002 ranking, Freehills advised on 40 announced transactions valued at US$11.70bn and 38 completed deals valued at US$11.91bn. Blakes also handled 40 announced deals with a slightly higher combined value of US$12.04bn and 35 completed deals worth US$9.18bn. Blakes M&A partner Byron Koster says the firm expects to improve its ranking this year, based on the number and value of deals it had in the pipeline as at January.
Mallesons' Friedlander says while the league table results sometimes surprise, there is a consistent theme of "two or three firms which continue to do the largest number of deals in both size and number". "There's always one or two firms that have a particularly good six months," Friedlander says. AAR's Crouch says the number of deals closed is the true measure of the success of an M&A practice. "A key part of why people use us is because we do have a proven ability to close multi-party transactions on time - and closure is when shareholders get paid."