08/07/2010 - 00:00

Tax decision likely to boost M&A activity

08/07/2010 - 00:00

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THE corporate advisory sector is expecting a rise in mergers and acquisitions activity now that the resources tax base has been narrowed, however buyers remain nervous about the detail and wary of global markets that have worsened since the tax debate sta

Tax decision likely to boost M&A activity

THE corporate advisory sector is expecting a rise in mergers and acquisitions activity now that the resources tax base has been narrowed, however buyers remain nervous about the detail and wary of global markets that have worsened since the tax debate started.

Last week, a WA Business News survey of M&A advisers revealed that activity had stopped or at least paused since the resource super profits tax was announced.

However, Prime Minister Julia Gillard has since cut a deal with major miners to limit the tax to iron ore and coal and push all oil and gas, including coal seam methane, into the existing petroleum tax regime.

Junior miners may be angry about being left out of the consultation, but few in WA are likely to have to pay the tax directly.

Azure Capital managing director Geoff Rasmussen said M&A activity was back on the drawing board, except for the sectors directly corralled by the renamed minerals resource rent tax.

“Outside iron ore, coal and CSM, it is back to where we stood pre RSPT,” Mr Rasmussen said.

“However it is with a little more nervousness in the market and therefore potentially still some reluctance on buy side.”

Mr Rasmussen said buyers hoped valuations would fall to reflect the nervousness about global markets.

Within the commodities caught by the new tax, Mr Rasmussen said there was still a significant amount of uncertainty regarding detail, which would continue to be a challenge to deal making in the short term.

Macquarie Capital Perth head Michael Ashforth said M&A activity was likely to come from both offshore strategic interests and local players seeking consolidation, but he expected the Chinese to be most active.

“China has the cash and the continuing strategic imperative of securing new sources of raw materials,” he said.

Mr Ashforth said economic concerns in international markets meant that deal makers were looking over their shoulders.

“The RSPT acted like a big concrete plug in what was a strong pipeline of deals earlier this year,” he said.

“Removing that impediment can only be good for resource M&A but the broader question is whether boards will have the appetite to bid aggressively given current volatility in global equity and debt markets.

“In terms of preferred sectors, gold, nickel and coal would be my picks, although there are limited on shore opportunities in the gold sector.”

• In the M&A table published in last week’s WA Business News it was incorretly stated that Azure acted for Mineral Resources, Campbell Brothers and Wildhorse Energy. In fact, Azure acted for Mesa Minerals, Ammtec and Peak Coal in each corresponding transaction.

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