02/07/2009 - 00:00

Dealmakers ponder life after the crisis

02/07/2009 - 00:00

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It is not that Perth dealmakers are joining the dole queues, they have just had a little more time on their hands recently.

Dealmakers ponder life after the crisis

CORPORATE advisers have reported minimal activity since the global financial market woes morphed into a crisis in the latter half of 2008.

Charles Fear, executive chairman of Argonaut Capital, said all deals were off once the crisis hit.

"It happened overnight," Mr Fear told WA Business News. "If they were using their paper they saw it go into free-fall."

Scrip takeovers went out of fashion and those with cash were relying on their reserves to get them through the uncertain months ahead. Companies with lazy balance sheets were suddenly smart, and the highly geared ones were suddenly distressed.

Fund managers interested in backing start-ups pulled their investment purse strings and even the large M&A plays that did occur, like the sale of BankWest to Commonwealth Bank, generated little income locally.

But the fiscal year was not without its interesting deals; some friendly, some predatory, some out of sheer necessity and some incorporating a little of each - like CBH Resources' friendly-turned-hostile takeover attempt of Perth-based Perilya.

Azure Capital and Gresham Advisory Partners emerged as the most active local players during the subdued fiscal year, attracting a good share of the available work.

Under the guidance of Richard Saywell, UBS has established itself as a significant local player and threat - and sometimes co-adviser - to the top two, while Argonaut's joint role in the successful defence of Ausdrill (against Macmahon Holdings) bumped the adviser into the top four by WA Business News' reckoning.

Macquarie Capital Advisers, accounting firm Ernst & Young and broker Euroz are also significant local M&A players.

Corporate advisers are almost unanimous in their belief that the worst is behind them. Prospective buyers - who were hesitating at the last moment of a deal because of the souring economic conditions - are reportedly eyeing their targets once again.

Mr Saywell said there would likely be an increase in M&A activity in the second half of the calendar year.

"While we are expecting more moderate economic growth over the next two years, we are not expecting a return to the intense uncertainty of late 2008 early 2009," he said.

"There's been nearly $50 billion of equity raised by Australian companies in the past 12 months, a trend we're increasingly seeing in other countries. This global recapitalisation has eliminated much of the balance sheet pressure potential acquirers faced earlier in the year and it's allowing them to actively revisit their consolidation targets."

The question corporate advisers have been pondering during the lull is to what extent the M&A landscape has changed.

One adviser told WA Business News that miners would find it much harder to secure backing from fund managers, unless they had proven production.

"There was greater preparedness to take on early stage companies," the adviser said.

Another adviser said large success fees were easier to come by in a bull market, when optimism sent sale prices soaring. Retainers paid to corporate advisers - usually about $50,000 a month - hardly covers the bills, the adviser said.

"Being busy isn't a problem; it's getting paid which is the hard thing," the adviser said.

Many advisory practices have been protected, however, from the pullback of M&A activity by the work generated by the flood of companies seeking to shore up their balance sheets by raising capital.

The one constant, it seems, throughout the boom and bust years is the appetite of the provocateur of local transactions, China.

The Chinese philosophy that by getting in at the bottom (resources) you value-add at the top (production) is alive and well.

Michael Anghie, who heads local M&A transactions for Ernst & Young, said $100 million-plus resource companies have and will continue to be targeted.

"I would be surprised if there was a mid cap based in Perth with a reasonable scale resource project that hasn't had an advance from the Chinese," Mr Anghie said.

Although there are spectacular collapses in all market conditions, it comes as no surprise that corporate advisory work alongside receivers is at levels not seen since the early 1990s.

The $135 million sale of CopperCo assets to Cape Lambert Iron Ore (Deloitte and PCF worked on either side of the transaction), were among several distressed transactions to have occurred recently.

More distressed sales are expected to enter the market as Babcock & Brown infrastructure assets are sold off.

The distressed state of the market hasn't, however, meant takeover targets are necessarily cheap, according to companies providing valuations for the hunted.

Cooper Energy was unimpressed with KPMG Australia's valuation of takeover target Incremental Petroleum of about four times the price it was trading at.

"If you believe in this valuation, you'll believe there are fairies at the bottom of the garden," Cooper chairman Laurie Shervington said in a statement at the time.

Texas-based TransAtlantic Petroleum eventually took control of Incremental in March this year.

KPMG came under fire again in June after valuing gold-producer Dioro (advised by Pendulum Capital) 180 per cent above its share price following advances from Avoca Resources (advised by RBC Capital Markets).

"In Avoca's opinion, even the Dioro directors themselves must have difficulty believing the KPMG valuation is the fair market value of a Dioro share," Avoca said in a statement to Dioro shareholders.

The battle for Dioro continues.

Morgan Stanley and JP Morgan were two investment banks included on the WA Business News list without a local office. Rio Tinto's (advised by Morgan Stanley) iron ore joint production deal with BHP Billiton and Sinosteel's (JP Morgan) hostile takeover of Midwest are of great interest to the state.

The purchase by Commonwealth Bank (advised by Morgan Stanley) of BankWest was widely regarded as the best deal of the past 12 months by local advisers, with most impressed by the pace at which the Commonwealth secured the asset from the ailing HBOS.

But as one adviser pointed out, the deals weren't even fly-in, fly-out deals, as they were completely brokered outside of WA.

Michael Lishman, of law firm Cochrane Lishman, said the M&A workload of Perth-based corporate and legal advisers had reduced during the financial crisis compared to the height of the boom. He said the nature of the work had also changed as issues around insolvency laws came to the fore.

"At the height of the boom we were turning away a lot of work and, like most firms, finding it difficult to find the people to do the work. Now we are not turning work away and we have less difficulty in finding people," Mr Lishman said.

"But you have to realise Perth is in economic terms one of the best places in the world at the moment. Corporate and legal advisers just have to accept that in the worst financial crisis for some time, deal flow and returns will be down."

ARK BARNABA

(Azure Capital)

Azure is the most prominent investment bank headquartered in Perth. It had a pretty busy year in a subdued market, which included acting as joint-adviser to Grange Resources in Australian Bulk Mineral's reverse takeover of the company and advising Portman on Cleveland Cliff's bid (successful) for the iron ore miner. Azure is headed by Mark Barnaba, Geoff Rasmussen and John Poynton.

MICHAEL ASHFORTH

(Gresham Advisory Partners)

Gresham's Perth office remains an important outpost for the Sydney-based group. The Perth branch has traditionally been close to WA Newspaper Holdings, although there has been a change in the board. Its advice to Mid West miners, buoyed by rising ore prices, has paid dividends over the years. Gresham counts its advice to RAC on the repurchase of 50 per cent of RAC Insurance joint venture from Suncorp as one of its major transactions of the year.

RICHARD SAYWELL

(UBS)

Richard Saywell was a noted visitor to Perth before becoming a permanent player leading the Swiss bank's local M&A operation. UBS' advisory role (alongside Azure) to Grange Resources in Australian Bulk Mineral's reverse takeover of the company, and advice to Perth-based Clough were two large pieces of work to be looked after by the Perth office.

CHARLES FEAR

(Argonaut Capital)

Charles Fear heads Argonaut's corporate advisory arm, which is well known in Perth. Argonaut successfully defended (alongside Lazard Carnegie Wylie) local mining services company Ausdrill against Macmahon Holdings during the fiscal year and advised Pacific Energy on its acquisition of Kalgoorlie Power Systems.

M&A 2008-09: The Dealmakers

 

AZURE CAPITAL

x Joint-adviser to Grange Resources in Australian Bulk Minerals $700m+ reverse takeover of the company

x Acted for Portman on United States company Cleveland Cliffs' all cash bid for the iron ore miner ($446m deal)

x Advising China Sci-Tech Holdings on acquisition of Oz Mineral's Martabe gold-silver project in Indonesia

($295m deal)

x Advised Abra Mining on a $62m proportional takeover by Hunan NMC

x Advised Incremental Petroleum on Cooper Energy takeover offer

x Advised Mount Gibson Iron on combined $163m placement, rights issue and offtake agreements involving

Shougang Concord and APAC Resources

x Acted for Paladin Resources on successful takeover of Fusion Resources

x Advised Fortescue Metals over cornerstone sale to Chinese steelmaker Hunan Valin Iron & Steel Company

($644m)

x Joint-adviser to Macmahon Holdings on $440m takeover of Ausdrill (bid was unsuccessful)

GRESHAM ADVISORY PARTNERS

x Advised RAC on repurchase of 50 per cent of RAC Insurance joint venture from Suncorp-Metway ($105m)

x Advised Iluka on sale of its stake in sandminer Consolidated Rutile to minerals company Unimin Australia

in a deal worth $165m

x Advised BG Group on $1 billion takeover of Pure Energy Resources

(non WA companies, but deal done out of Perth office)

x Advised WA Newspapers on Seven Network's board takeover

x Advised Murchison Metals on proposed merger with Midwest (deal abandoned)

x Advised Kalahari Uranium on potential $220m merger with Extract Resources (merger eventually terminated)

UBS

x Joint-adviser to Grange Resources in Australian Bulk Minerals $700m-plus reverse takeover of the company

x Adviser to Clough in sale of its 82 per cent stake in PT Petrosea Tbk to Indika Energy ($129m)

x Advised Perilya on $489m friendly merger with CBH Resources (deal terminated)

x Advised Perilya in response to a hostile all-scrip takeover bid by CBH Resources and subsequent 50.1%

stake placement to Shenzhen Zhongjin Lingnan Nonfemet (worth $45m)

x Joint-adviser to Macmahon Holdings on $440m hostile takeover of Ausdrill (bid was unsuccessful)

ARGONAUT CAPITAL

x Joint-adviser to Ausdrill in $440m successful takeover defence against Macmahon Holdings

(Lazard Carnegie Wylie also advised)

x Advised Pacific Energy in $106m private acquisition of Kalgoorlie Power Systems

x Advising Anglo Pacific in $16m on-market takeover bid of Royalco Resources

x Advised IMX Resources in $6m sale of Four Mile Uranium Project royalty to Anglo Pacific Group

x Advising BC Iron on joint venture with Fortescue Metals concerning access agreement with

The Pilbara Infrastructure

MACQUARIE

x Advised Straits Resources on sale of 60 per cent stake in subsidiary Straits Bulk & Industrial to Thailand's

PTT in a deal worth $470m

x Advising Woodside Petroleum on disposal of its 51.55 per cent interest in the Otway gas project

x Advising receivers and managers of Windimurra Vanadium on sale or recapitalisation of the

Windimurra Project

x Advised Antam and Zhongjin (Tango) on $550m joint bid for Herald Resources

(Rival bidder PT Bumi won bid but Tango consortium profited)

ERNST & YOUNG

x Lead adviser to Burrup Fertilisers in relation to an equity placement to Yara International ($176m)

x Lead adviser to Gujarat NRE Minerals in its off-market takeover offer for Rey Resources

x Lead adviser to Regis Group on the proposed divestment of the Hollywood Village aged care and

retirement complex

EUROZ SECURITIES

x Advised Cooper Energy on its $104m takeover of Incremental Petroleum

(bid was unsuccessful but Cooper made a profit after selling stake to TransAtlantic Petroleum)

x Advised Mitsui on farm-in to Nexus Energy's exploration permit AC/P41 in the Browse Basin ($67m)

x Advised Herald Resources on $550m takeover bids from Antam and Zhongjin (Tango) and PT Bumi

MORGAN STANLEY*

x Sole adviser to Rio in $116 billion iron ore production joint venture with BHP Billiton

x Advised HBOS on sale of BankWest & St Andrew's wealth and insurance business to Commonwealth Bank

in $2.1 billion deal

x Defence adviser to Midwest on $1.5 billion hostile takeover by Sinosteel (takeover was successful)

x Advised Australian Bulk Minerals in reverse takeover of Grange Resources

x Defence adviser to engineering and infrastructure company GRD on $106m takeover proposal by

UK-based AMEC (ongoing)

JP MORGAN*

x Sole adviser to Sinosteel in $1.4bn hostile takeover of Midwest

(first successful hostile takeover in the world by a Chinese company)

x Advised Fortescue Metals' over cornerstone sale to Chinese steelmaker Hunan Valin Iron & Steel Company

($644m)

PCF CAPITAL GROUP

x Involved in sale of the GBS Gold assets in the Northern Territory to Crocodile Gold for $51m

(acted on behalf of GBS administrators)

x Involved in sale of Minjar Gold Project to Golden Stallion for $13m (acted for Minjar administrators)

x Adviser to the receiver and managers of CopperCo in the $135m sale to Cape Lambert

DELOITTE

x Advised Cape Lambert Iron Ore on the $135m acquisition of the assets of CopperCo

x Conducted a sale process for the disposal of Matrix Metals and its assets

x Facilitated and completed the Lady Annie and Mineral Securities Operations Limited sale process

PENDULUM CAPITAL

x Defence adviser to Dioro Exploration NL in response to takeover offer by Avoca Resources

(worth approx $50m - ongoing)

x Advised VDM Group on $5.2m acquisition

RBC CAPITAL MARKETS

x Advising Avoca Resources on takeover of Dioro Exploration NL (worth approx $50m - ongoing)

x Adviser to CBH Resources on $489m friendly merger with Perilya (deal terminated)

KPMG

x Advised HE Parts International on acquisition of Crushing & Mining Equipment

BDO KENDALLS

x Advised RPS Group on acquisition of consultancy Koltasz Smith

RFC CORPORATE FINANCE

x Adviser to Anzon Australia on its $630m takeover offer from Roc Oil

PATERSONS CORPORATE FINANCE

x Advised Hannans Reward on $6.3m all-scrip takeover offer from Fox Resources (deal abandoned)

DEUTSCHE*

x Advised Hunan Valin Steel's $1.3 billion acquisition of a 17.4 per cent stake in Fortescue Metals

x Advised Babcock & Brown on its $600m divestiture of its 37 per cent stake in Coogee Resources

GRANGE CONSULTING

x Advising North Australian Diamonds on takeover bid by Legend International Holdings

(offer currently $30m - in progress)

WHK HORWATH

x Lead adviser on the sale of the Arrix commercial cleaning business to Spotless Group

MERGERS & ACQUISITIONS

x Settlement of APC Storage group of companies (partial MBO with Greenstone Partners and management)

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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