Optimism in M&A space

PERTH corporate advisory experts expect a surge of private equity deals in Western Australia over the next 12 months, as markets rebound and businesses bounce back to profitability.

With much interest from the US, China, India and South Korea in the state’s fledgling resources and oil and gas sectors, WA Business News has been told by firms in the mergers and acquisitions space that while many trade buyers are eager to enter the market, there is increasing interest in private equity funds.

Recent transactions in WA include Ernst & Young advising on the $40 million sale of Gull Petroleum’s WA terminal to Coogee Chemicals, and KPMG’s advisory role in the $40 million sale of Netspace to iiNet.

Ernst & Young M&A adviser, Michael Anghie, said there had been a gradual increase in confidence in the marketplace with the expectation of a sustainable rebound in profitability.

“We are seeing the level of transaction activity increase, however deal risk remains high and financing is still difficult,” he told WA Business News.

KPMG corporate finance partner, Adrian Arundell, said there was a re-emergence of people wanting to do deals this year with a “lot of private equity interest in WA companies”, but only few deals so far had been done.

“I think one of the big trends we’re going to see and I think it’s going to be a WA phenomenon, is a real prevalence of private equity deals in WA,” Mr Arundell said.

“They are really strong out in the market.”

He said KPMG was currently dealing with several private companies that refrained from selling during 2009 but were now waiting for “the ride of the growth that we’re going to get over the next one to two years”.

PricewaterhouseCoopers WA head of M&A (resources), Brian Beresford, said his firm found those businesses that contemplated selling over the past several years but held off now viewed conditions to be buoyant enough to sell.

“There are a lot of trade buyers wanting to enter the market, but the other thing we’re seeing is the level of interest of private equity funds,” he said.

“The private equity players typically invest directly in resources companies or oil and gas companies, but they are happy to invest in companies that service these sectors.

“But we are also finding there are some companies which can see a bit of an upswing happening here and want to increase value a bit further over the next 12 to 24 months and then undertake a sale.

“They want to grow their earnings then be in a stronger position to sell their business.”

Perth-based Mergers & Acquisitions managing director Ross Goldstein said he was confident of more transactions taking place this year.

“Now banks are still fairly tight with their lending, and with private equity firms their gearing ratio is not as high as it previously was, but other than that, the public companies, private equity firms, and private buyers, they are really back in the market,” he said.