The annual Business News corporate finance survey has highlighted the top advisers in the WA market and the emergence of a new style of strategic investor.
THE state’s leading corporate finance advisers shared a common position when asked by Business News to reflect on the past year.
Top-of-mind for all was the raft of activity and activism in the lithium market, which they agreed was nothing short of unique.
Euroz Hartleys executive chairman Andrew McKenzie said it was a special year.
“In all my 30 years of broking I’ve never seen anything like it,” he said.
Barrenjoey Capital Partners partner Paul Early said he was surprised by the volume of merger and acquisition activity during what he called the past year’s “lithium wars”.
The advisers were referring to the acquisitive enthusiasm shown by some of the state’s biggest lithium players before the commodity’s end-of-year correction.
This was headlined by the blocking stakes acquired by Australia’s richest person, Gina Rinehart, through her private company Hancock Prospecting.
Mrs Rinehart effectively disabled Albemarle Corporation’s multibillion-dollar bid for Liontown Resources and angled in on Chilean lithium producer SQM’s proposal for Azure Minerals.
Euroz Hartleys’ Perth corporate finance team executed those block trades, while also completing similar action on other stocks, including Azure Minerals and gold company OreCorp.
Within the Liontown Resources raid, Euroz Hartleys orchestrated about 25 block trades costing Hancock about $1.51 billion worth of stock to become the largest shareholder on the register.
This effectively made Albemarle’s $6.6 billion proposal to buy the Kathleen Valley developer untenable, with the bidder subsequently walking away in October.
At the other end of the table, Barrenjoey’s Perth partners were leading the financial advice for New York-listed Albemarle on its now-unsuccessful bid for Liontown.
The firm, which topped Business News’ annual corporate finance survey for M&A advisers, also counted takeover targets Azure Minerals, Mincor Resources and Tietto Minerals among its clients.
Barrenjoey founding partner Peter Watson acknowledged that, while Albemarle’s decision to walk away from its Liontown bid was unfortunate, ensuring his clients had access to the right advice was essential.
“Are we disappointed that it didn’t happen? Yes, a lot of work goes into these deals,” he said.
“But the circumstances that led to that complication, which was Gina coming in and buying the stake, changed the nature of that transaction to a point that just made it untenable for Albemarle to proceed,” Mr Watson said.
“At the end of the day, that’s what happened, and Albemarle decided to walk away because of that.
“Now, no-one knew where the lithium price was going to go, but those outcomes are just par for the course of advising companies.”
In the case of Azure Minerals, SQM announced in October it had struck a $1.63 billion deal to acquire the battery metals explorer, which owns the Andover project in the west Pilbara.
SQM’s bid, priced at $3.52 a share, was structured as a scheme of arrangement.
Unusually, it also announced a simultaneous off-market takeover offer at $3.50 a share that would kick in if the scheme failed. This would make it easier for SQM to succeed if a competing bidder emerged.
Unlike Albemarle’s proposal for Liontown, which was subject to due diligence, SQM’s bid for Azure was only subject to the Foreign Investment Review Board and no other shareholder acquiring a stake greater than 19 per cent.
This effectively meant SQM was unable to walk away from the bid.
Its original plan was upended when, just 24 hours later, Hancock Prospecting confirmed it had been building a strategic 18 per cent foothold in Azure since June.
Chris Ellison’s Mineral Resources followed suit to acquire a 13.6 per cent stake in Azure, in conjunction with its acquisitive streak in companies such as Delta Lithium and Kali Metals.
However, about two months later, Hancock and SQM announced they had partnered under a 50:50 joint venture to make a new and improved $1.7 billion bid for Azure, which is still live.
Like the original offer, it included both a scheme and alternative off-market offer, priced at $3.70 under the scheme or $3.65 should that fall through and trigger a takeover.
For the structure to work, Barrenjoey’s Mr Watson said, a bidder needed to be prepared to risk owning less than 100 per cent and have a majority shareholder sitting on the register.
As evidenced through the JV with Hancock, SQM appear to be prepared to own less than 100 per cent of the Andover asset in order to access the lithium asset, rather than walk away.
Corporate advisers agree that last year featured the emergence of a new style of strategic investor.
As well as Hancock Prospecting, the other notable example was AustralianSuper, which blocked Brookfield’s $20 billion bid for Origin Energy.
Gilbert + Tobin corporate finance partner Sarah Turner said the difference with these new strategic stakes was that the holders had different strategic reasons to normal.
She said these investors were not simply looking for a higher price, which made some of the deals even riskier.
“Is it just a private equity blocking stake that will generally tip into the higher offer or is it something that’s really going to stop a deal?” she said.
“I think last year there were more examples of people who were really there to stop a transaction, which gets hard for a board to manage and also means the deal you kick off is less likely to go ahead.”
Euroz Hartleys head of corporate finance Ben Crossing said the rulebook had changed, and it had been a long time since he’d seen proper activism in the market.
Barrenjoey’s Peter Watson (right) and Paul Early, who says the “lithium wars” were the standout feature of 2023. Photo: Michael O’Brien
Barrenjoey’s Mr Early said he anticipated the structure employed by SQM may be used more often.
“In certain circumstances when you’re trying to get an outcome more definitively, you’ll potentially see that structure being used,” Mr Early told Business News.
“There’s a lot more thought as to how to try and mitigate the risks and ensure a transaction can be completed with the potential for people to come in and buy up to 19.99 per cent, and potentially be blockers, which is what we’ve seen happen significantly.”
Mr Early said the share registers of almost every lithium company in Western Australia either had entities owned or steered by Gina Rinehart or Mr Ellison’s Mineral Resources on them.
One of these is ASX debutant Kali Metals, advised by Gilbert + Tobin, which attracted MinRes and Mr Ellison’s private vehicle, Wabelo, to acquire stakes.
Ms Turner said although Kali Metals was a small IPO, it had a very strategic register.
“The reality is that even if [lithium] is short-term choppy, these investors see it as being a big step for the future, they’re convinced,” she said.
But despite Kali’s listing, Ms Turner said she wouldn’t go as far to claim that the IPO market was open and didn’t expect it to change for the next quarter.
Last year’s IPO market continued the trend of 2022, as junior miners struggled to raise funds.
M&A
Business News’ annual corporate finance survey found 238 WA-linked mergers and acquisitions worth a collective $66.2 billion were announced in 2023.
Although advisers were kept busy with a similar number of M&A deals compared to the previous year (247), the collective value more than doubled from $30.4 billion in 2022.
One noteworthy shift among financial advisers on the M&A front was Barrenjoey’s leap from third to first position on the survey, having advised on seven deals worth $11.2 billion in 2023.
That’s up from its work on two deals worth $9.7 billion in 2022.
Underpinning its growth was advising Albemarle on the attempted acquisition of Liontown and advising takeover target Azure on SQM’s approach.
On the other side, Greenhill & Co was hired by Liontown to advise on Albemarle’s (ultimately unsuccessful) takeover bid, helping lift the financial adviser to fifth place on the table.
Global investment banks such as Morgan Stanley, UBS and JP Morgan worked on some of the biggest WA-related M&A deals for the year.
The previous year’s M&A star, Macquarie Capital, relinquished its top rank after its deal flow dropped to six on the Business News list, at $4.5 billion, down from 13 deals totalling $15.9 billion in 2022.
The most active advisers, in terms of number of deals, included local firms Azure Capital, Sternship Advisory and Argonaut. All had busy years, each advising on 10 or more M&A deals, worth $4.4 billion, $1.9 billion and $509 million, respectively.
On the legal front, Perth lawyers advised on several of the largest global M&A deals of 2023, some in a lead role and others in a support role.
The major M&A deals of the year included New York-based Newmont buying Melbourne-based goldminer Newcrest for $26 billion.
Newmont appointed King & Wood Mallesons and White & Case as its legal advisers, along with a suite of global investment banks for financial advice, while Newcrest appointed Herbert Smith Freehills for legal advice.
The Perth connection was led by specialist M&A lawyer Antonella Pacitti.
Ms Pacitti was one of three KWM partners to co-lead the Newmont takeover, along with projects partner Scott Langford and M&A partner Will Heath, both based in Melbourne.
Ms Pacitti said she co-led the matter from start to finish, including structuring, negotiations, board advisory and implementation.
White & Case had a team of international lawyers at work on the deal, primarily in New York and London, while the HSF team was led by two Melbourne-based M&A partners.
Ms Pacitti was also the lead adviser on a second major international deal: the $15.7 billion merger of Australian company Allkem and US company Livent Corp to create a global lithium producer.
The merged company, Arcadium Lithium plc, has a primary listing on the NYSE and a foreign exempt listing on the ASX.
This work built on an existing relationship, including from the merger of Perth-based Galaxy Resources and Brisbane-based Orocobre to create Allkem, which is chaired by former Woodside boss Peter Coleman.
Ms Pacitti was assisted by fellow partner Roger Davies. The two left Ashurst two years ago to join KWM.
Livent was advised by Allens, whose team was led by Sydney-based head of M&A Guy Alexander.
The Allens team included two experienced Perth lawyers: counsel Dave Filov and partner Bryn Hardcastle.
In total, KWM maintained its market dominance in WA, after working on 14 M&A deals worth $36.8 billion in 2023.
The firm bolstered the value of its deal flow compared to 2022, when it advised on 16 deals totaling $12.2 billion.
Herbert Smith Freehills advised on seven deals tallying $25.4 billion in 2023.
Allens enjoyed a busy past year, advising 14 M&A deals worth $19 billion, compared to eight deals worth $1.2 billion in 2022.
Gilbert + Tobin maintained its deal flow, albeit the value of the M&A deals it advised on fell from $10.7 billion in 2022 down to $3.4 billion in 2023.
ECM
This masthead’s survey also revealed 469 WA-related equity capital markets deals totalling $10.81 billion were completed in 2023, compared with 511 ECM deals worth $9.55 billion in 2022.
Gilbert + Tobin held its top rank amongst ECM legal advisers, after working on 28 deals worth $1.8 billion in 2023, compared with 27 deals worth $1.3 billion in 2022.
It was hired for the largest ECM deal of 2023, being APA Group’s $750 million placement and share purchase plan to raise funds for its acquisition of some of Alinta Energy’s Pilbara assets.
Barrenjoey, alongside Morgan Stanley, were financial advisers to APA Group.
Allens maintained its deal flow across to ECM work, after advising on 15 deals worth $1.8 billion, headlined by its work on Evolution Mining’s $525 million placement.
Law firms Thomson Geer and Hamilton Locke handled the majority of ECM deals, advising on 44 deals worth $1.31 billion and 79 worth $1.12 billion, respectively.
They were closely followed by Steinepreis Paganin, which provided legal advice on 77 deals totalling $652 million in the past year.
Allen & Overy and DLA Piper advised on fewer ECM deals, albeit on a much larger scale.
Meanwhile, financial adviser Canaccord Genuity maintained its top ranking across the ECM advisory market, working on 76 deals worth $2.9 billion in 2023.
Although Canaccord sits atop the ladder, its number of deals and collective value dropped from the 97 ECM deals worth $3.3 billion in 2022.
It counted Genesis Minerals, De Grey Mining and Metals Acquisition Corp among its key clients.
Also at the pointy end of the ECM financial advisers table was Bell Potter Securities, advising on 37 deals worth $2.1 billion, up from fifth place in 2022 with 26 deals worth $814 million.
Bell Potter was hired to provide financial advice for Nickel Industries, Liontown Resources and Chalice Mining among others.
Maintaining third position on the ECM financial advisers table for a second consecutive year was Euroz Hartley, which advised on 68 ECM deals worth $2.5 billion.
However, the Business News tables do not include block trades, which substantially boosted Euroz Hartleys’ market activity last year.
Barrenjoey’s rank on the ECM table fell from second to fourth in 2023, after advising on eight deals worth $1.1 billion compared to six deals worth the same amount in 2022.
Outlook
Euroz Hartleys’ Mr McKenzie said the improved market activity in the second half of 2023 followed two tough years for brokers in terms of ECM action.
He said the market was subdued due to uncertainty around inflation and interest rates.
“It has been a quieter two years, but that’s also because we’ve just had a massive two years before that and we’re always on a bit of a boom-and-bust cycle,” Mr McKenzie said.
“After two quiet years where companies haven’t raised as much money and there hasn’t been as much overall share price action in the smaller end, the cycle comes around again, and companies need to replenish, and they need to raise money.
“Different things set it off but quite often it’s exploration driven and there’s been some really good exploration finds in the last six to twelve months.”
Euroz Hartleys’ Mr Crossing echoed the sentiment around the lithium movements in late 2023.
He described the market activity as “the most interesting block of transactions” he would probably ever see from an M&A perspective.
Looking forward, Euroz Hartleys managing director Tim Bunney said although there would be bumps in the road, the consensus was that investors were bullish on WA for the next decade.
“All this M&A activity that’s occurred, the block trading … what some of our potential clients and others are looking to piece together and the lithium trade, that’s all going to come to fruition,” Mr Bunney told Business News.
“There are some very smart people who are taking some very large bets.
“They’re not investing for a year or two years, like some of our institutional clients.
“These are multi-decade-long bets on asset level investment.”
Barrenjoey’s Mr Watson said he would expect to see an uptick in market activity once investors felt confident lithium prices had hit rock bottom and started to regain momentum.
“If people are prepared to act counter-cyclically, this is the right time to buy,” he said.
“But no-one wants to catch the falling knife.
“When the commodity prices are falling, everyone is worried if they buy today and its falls further, that it makes them look silly, even though you’ll never pick the bottom perfectly.
“Usually what you find is that you get more activity when people get comfortable that you’ve hit the bottom, and even more so when it just has that slight uptick coming out the other side.
“It’ll be interesting to see whether it does translate into a lot more activity. It should, because if you believe in the long-term fundamentals, this is a short period where there’s a supply-demand imbalance, and it will work itself out.”