07/07/2014 - 10:51

Market awaits strong lead

07/07/2014 - 10:51

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FEATURE: The June quarter presented a broad range of transactions for corporate players, however a noticeable lack of direction remains.

Market awaits strong lead

The June quarter presented a broad range of transactions for corporate players, however a noticeable lack of direction remains.

Dealmakers will be left pondering the mixed messages delivered during the June quarter, with transaction volumes up but values down.

Business News research has found a total of $928.9 million was raised from 69 transactions and 45 mergers and acquisitions, worth a combined $4.03 billion, for the three months to the June 30.

This is compared with the March quarter when a total of $1.35 billion was raised from 60 transactions and 37 M&A deals worth $4.09bn.

There were just four capital raisings announced in the June quarter for more than $50 million, including Southern African-focused Aquarius Platinum’s $244 million rights issue, which was the largest for the period.

Sandalwood grower TFS Corporation completed a $67 million raising, which has been used to buy land and plantations, on the back of strong investor support that has boosted its share price more than 40 per cent since the start of the year.

Initial public offerings staged a mini resurgence, although off a very scarce base in the March quarter when just one company, Stavely Minerals, floated.

The June quarter had five announced IPOs, the only one to have been completed so far being Pioneer Credit’s $40 million float, which was advised by Gilbert + Tobin and Evans & Partners.

QCG Resources, which acquired MMG’s Avesbury nickel mine in Tasmania for $40,000 during the quarter, unveiled plans for a $60 million IPO.

The last listing of that size by a Western Australia-based company was Calibre Group’s $75 million IPO in 2012, according to BNIQ.

Gilbert + Tobin corporate advisory partner Sarah Turner said the quarter had been busier than anticipated, with increased activity in the smaller biotech IPOs.

“The research and development we have got going on in Australia around tissue and cancer and other serious illness treatment is world class and I think that’s why the interest is there, because it’s developing into one of the great success stories,” she said.

Dimerix Bioscience and Orthocell each announced plans to list on the ASX during the June quarter, in floats worth $9 million and $8 million respectively.

Azure Capital managing director Geoff Rasmussen said sentiment had been improving since February.

He said there was lower volatility as many commodity prices steadied and markets became more comfortable with the strong Australian dollar.

Ms Turner said BHP Billiton’s announced redundancies had one of the biggest effects on sentiment, particularly for other iron ore players and mining services firms.

“If you are a mid-cap iron ore player and financially you are going okay, you may think twice about doing a deal,” she said.

“It does make people a bit more cautious when they see things like that.”

Macquarie Capital Advisors executive director Michael Ashforth said resources M&A remained subdued despite some high-profile transactions during the quarter, such as Baosteel and Aurizon’s joint $1.4 billion takeover of Aquila Resources.

“I expect we are going to be in for fairly prolonged period of relatively low levels of activity reflecting the broader resources sector downturn,” Mr Ashforth said.

Other than the Aquila takeover, and Canada’s B2Gold making a $615 million takeover for gold-focused Papillon Resources, there were few other substantial M&A deals in the resources sector for the period.

Backdoor listings featured prominently throughout the period after a trickle of similar deals at the start of the year.

Of the 10 backdoor listings during the June quarter, eight were junior resources stocks seeking a fresh start amid a capital drought for mineral explorers. 

BDO partner corporate finance Sherif Andrawes said many listed exploration companies were turning into ‘shells’.

“There is a push from the resources industry because it is very hard to raise money for projects unless they are really good projects,” he said.

“For technology companies, it is very hard for them to do IPOs here in Perth, whereas they can do a backdoor listing and it gives them the (shareholder) spread much more easily.”

Euroz Securities was involved in three of the top 10 raisings for the quarter, which helped make the firm the most valuable ECM advisor for the period, working on $129.6 million worth of deals.

Euroz executive chairman Andrew McKenzie said the quarter was an improvement, calling it “solid” but adding that it wasn’t “spectacular”.

Euroz also acquired Blackswan Equities during the quarter in a deal worth $6.7 million.

The only other firm to advise on multiple deals in the top 10 raisings was Canaccord Genuity, which was involved with Tiger Resources’ $20 million placement and TFS Corporation’s $67 million placement.

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