Uncertain outlook for deals

A flurry of deals over the past fortnight, including four acquisitions by international companies expanding in Western Australia and the year's largest capital raising, has added life to a flat corporate finance market. 

The raw numbers from Business News’ latest quarterly corporate finance survey show how quiet the market has been.

The March quarter featured 56 M&A deals and 60 capital raisings (of more than $1 million).

Those numbers indicate the local market is on track to repeat the soft market conditions of 2015, when a total of 470 M&A deals and capital raisings were announced.

Perhaps more significant is the small deal value.

The total value of capital raisings in the March quarter was just $502 million, with a big chunk of that coming at the very end of March when Western Areas ($60 million) and TFS Corporation ($65 million) announced placements.

By comparison, the total value of completed WA capital raisings in 2015 was $3.7 billion.

In the M&A sector, the value of completed March quarter deals was just $1.6 billion, with Wesfarmers contributing nearly half through its acquisition of UK-based Home Retail Group.

On a brighter note, the market has been buoyed by a flurry of deals over the past couple of weeks.

The flurry started in late March when Tox Free Solutions announced the $70 million purchase of Sydney company Worth Corporation.

More recently, four substantial M&A deals have emerged from left-field after international groups moved on local businesses.

It late March, Hong Kong-listed Legend Holdings bought 90 per cent of family-owned seafood business Kailis Bros.

That was followed last week by three June quarter deals - French company Suez paid $87 million for Perthwaste, UK-based Wood Group bought mid-tier engineering firm SVT Engineering Consultants for an undisclosed sum, and South Africa’s Sea Harvests launched a proportional takeover offer for listed seafood company Mareterram.

The outlook for capital raisings also brightened after lithium hopeful Pilbara Minerals announced a $100 million raising last week

That was the largest raising by any WA company this year.

See below for a list of major March quarter deals, or click here for a full listing: https://www.businessnews.com.au/Corporate-Finance

Top dealmakers

The most active advisers in the quarter included Lazard, Macquarie Capital, Gresham Partners, and Hartleys, while King & Wood Mallesons (KWM) and Herbert Smith Freehills were among the busiest law firms.

KWM partner Heath Lewis spoke for most advisers when he described the M&A market as quite difficult.

“As a firm we’re getting more than our fair share and on a good trajectory,” Mr Lewis said.

KWM brought a unique perspective to the market as its work included a hostile takeover defence for CBH Group, a successful acquisition by Perth Markets, and a successful trade sale for Kailis Bros.

“We’ve seen a real mix of roles,” partner Nigel Hunt said.

“It means we’ve had the opportunity to see the drivers on both the buy side and the sell side, and seen the cultural aspects.

“The transactions we have worked on have been fascinating from that perspective.

“We’ve been living those things in real time.”

Mr Hunt said KWM’s Chinese links were helpful in both buy-side and sell-side transactions.

“When people are selling, they come to us because they want insights into how the Asian buyers are going to work and think,” he said.

“We were able to bring a lot of that to bear in the Kailis transaction.”

Mr Lewis said advising CBH on the complex corporatisation proposal from Australian Grains Champion was a unique experience.

“Not many advisers in Australia would have worked on a hostile scheme proposal to corporatise a cooperative,” he said.

With AGC vowing to continue its pursuit of CBH, and the cooperative planning its own review of its ownership structure, there is sure to be plenty more work for the advisers to both entities, including Deutsche Bank, Gresham Partners and Jackson McDonald.

The debate over the future of CBH and the sale of Kailis Bros to Chinese interests adds to major changes in the agribusiness sector.

Other developments have included the ASX listing of livestock exporter Wellard and seafood producer Mareterram. 

Privatisation prospects

Advisers and lawyers are closely watching the state government’s privatisation push with an eye to a role for their firms.

The $135 million sale of Market City was completed in January, and Gresham Partners was appointed last month to manage the sale of the Keystart home loans portfolio.

However, the sale of other assets is looking highly problematic, with the Liberal Party’s partner in government, Nationals WA, firmly opposed to the sale of Fremantle Ports and referring legislation for the sale of Utah Point to a parliamentary committee.

The Nationals leader, Terry Redman, has labelled the state government’s sales process fundamentally flawed and said the party could not see a pathway to support the sale of Fremantle.

Despite those comments, Treasurer Mike Nahan is believed to be reviewing the Fremantle Ports legislation to try and win over the Nationals.

The sales of other assets like the TAB and Western Power are also uncertain.

The Nationals and the racing industry are yet to support the proposed TAB sale, and Labor has already declared its opposition to the sale of Western Power or any other energy assets, accusing the government of rushing into a fire sale.

Private equity sales

One very large transaction that would boost the market is the potential sale of Alinta Energy, which generates a majority of its $2 billion in annual revenue in WA.

US-based private equity group TPG pulled Alinta from the market last year after failing to attract a suitable price, but has returned with an apparent resolve to get a deal done.

TPG has once again retained Lazard to advise on the sale, and is believed to be receptive to break-up options, with bids due last week.

Its preferred option remains a single sale of the entire business, though it remains to be seen whether it can attract the rumoured target price of $5 billion.

Rumoured bidders include AGL Energy and APA Group, which have lodged a joint bid, along with Chinese groups and Wesfarmers.

If Alinta does change hands, it would be the fourth major ownership change for the business since the Court government privatised the former AlintaGas in 2000.

Alinta is one of several big WA businesses that will inevitably come on to the market when their private equity owners decide the time is right for a sale.

Others include Bhagwan Marine, mining contractor Barminco, trucking group Bis Industries, dairy producer Brownes, and Chicken Treat owner Quick Service Restaurant Holdings.

Making moves

The restructuring of financially stressed businesses continues to deliver opportunities.

Ausdrill recently sold its DT Hi-load business to privately owned Schlam Group, while Singapore-listed Ausgroup has engaged Macquarie Capital to sell its scaffolding business.

A much larger and far more costly exercise is Atlas Iron’s proposed debt-for-equity swap.

While Atlas is striving to save every penny at its operations, at least five law firms in Australia and the US are working on this exercise, with Ashurst, Sullivan & Cromwell, and Baker & McKenzie advising the company. Gilbert + Tobin and Jones Day are advising the lenders.