03/07/2007 - 22:00

Unpredictability dominates a year of milestones

03/07/2007 - 22:00


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Gresham Advisory Partners and Azure Capital have emerged as Perth’s top corporate advisers, in WA Business News’ inaugural M&A survey.

Unpredictability dominates a year of milestones

Corporate takeovers in Western Australia passed two notable milestones this year.

In what will be Western Australia’s biggest company takeover, Babcock & Brown Ltd and Singapore Power plan to pay more than $8 billion for energy company, Alinta Ltd.

And earlier this week, Wesfarmers Ltd this week won support from Coles Group Ltd for a $22 billion takeover bid – the biggest takeover in the country.

These deals highlight what has been a very good year for corporate advisers and lawyers advising on M&A deals.

Sydney-based Gresham and Perth-based Azure each advised on about 10 M&A transactions during the 2006-07 financial year, including some of the biggest deals (see table page 18).

Notably, the two firms were on opposite sides of one of the year’s most hotly contested takeovers – Paladin Resources Ltd’s hard-fought $1.1 billion acquisition of Summit Resources Ltd.

Macquarie Bank, which was both an advisor and an investor in several deals, and local investment bank Argonaut Capital, also ranked highly in the survey.

The corporate advisers are operating in a buoyant market, with the value of takeover deals more than doubling last financial year.

The value of completed takeovers in Australia grew from around $47 billion in 2005-06 to $115 billion in 2006-07, a KPMG study has found.

The new financial year has started with plenty of takeover action. The live deals include the Coles and Alinta takeovers, which are subject to shareholder approval but are expected to proceed.

Mining house Consolidated Minerals Ltd, engineering and infrastructure group GRD Ltd, uranium explorer OmegaCorp Ltd, and winemaker Evans & Tate Ltd are also in play.

A characteristic of the takeover market is its unpredictability.

Kerry Stokes’ Seven Network Ltd acquired a 15 per cent stake in West Australian Newspapers Holdings Ltd, which was widely anticipated, but nobody anticipated Seven becoming a key player in the battle over GRD.

Seven recently lifted its GRD stake to 12.2 per cent, giving it a pivotal role should Transfield Services Ltd proceed with a takeover bid.

The large amounts of money at stake have attracted the big international investment banks to the WA market.

Firms such as Morgan Stanley, JPMorgan, Merrill Lynch and Citigroup were lead advisers on some of the biggest deals completed in WA last year.

Global investment bank UBS is also very active in WA, though it did not advise on any M&A deals last year.

Specialist east coast firms including Carnegie, Wylie & Co and Caliburn Partnership have also been active in the WA market.

Their local competition includes the big accounting firms, which all have a corporate finance unit in their Perth office.

The most prominent is Ernst & Young, which recently strengthened its Perth corporate finance team with the appointment of new partners Roger Dartnell and Peter Magill.

Specialist advisory firms Prime Corporate Finance and RFC Corporate Finance, which focus on the resources sector, have a substantial niche in the M&A market.

Stockbroking firms Hartleys, Euroz Securities, Patersons Securities and Cygnet Capital also undertake a small amount of M&A work, though their main focus is equity capital raisings.

West Perth firm Mergers & Acquisitions Ltd has also carved a niche selling privately owned businesses, which puts it in competition with some of the bigger corporate advisory firms.

Most of the investment banks active in WA service the market on a fly-in fly-out basis, but that is very slowly changing.

Merrill Lynch became the first big international investment bank to open a Perth office when it recruited Macquarie Bank’s Neville Gardiner last August.

South Africa’s Investec Bank has also gained a Perth presence, after it bought the Australian banking operations of the Rothschild group.

Macquarie Bank’s M&A work is often driven from Sydney, but it signalled its interest in the WA market last year when it recruited Ernst & Young’s Martin Alciaturi to head up its Perth advisory unit.

Sydney-based Gresham was the first major corporate advisory firm to establish a permanent presence in Perth, about 10 years ago.

Each firm that has stepped up its Perth presence can point to some benefits.

Mr Gardiner, for instance, joined Merrill Lynch just in time to help advise UK company, Tullow Oil plc, on its $1.3 billion acquisition of Perth oil producer, Hardman Resources Ltd.

Mr Gardiner said Merrill had also been doing a lot of funding work, for instance helping Griffin Group raise $450 million in the US’s debt capital market.

Conversely, firms such as UBS have a strong presence in WA despite not having an office here.

UBS executive director Richard Saywell said the firm had three standing defence and acquisition mandates.

Its main focus in WA has been capital raising transactions for clients including Paladin Resources, Western Areas and Avoca Resources.

“We also have a significant IPO, which we will announce shortly,” Mr Saywell said.

Perth-based iron ore producer Mt Gibson Iron Ltd engaged two international firms, Citigroup and Morgan Stanley, to advise on its successful takeover of Aztec Resources Ltd.

Mt Gibson managing director Luke Tonkin said the selection was based on the quality of the people each firm employed.

“We looked at a suite of individuals within the group, rather than the group itself,” Mr Tonkin said.

“It was also a suite of services that we were looking for.”

Integrated Group Ltd’s Chris Sutherland agreed that having the right people was more important than having a prestige brand.

His firm engaged The Caliburn Partnership as its main adviser leading up to its merger with Melbourne-based Programmed Maintenance Services Ltd.

The two big players in the Perth market have notably different strategies.

Azure has built a diversified investment banking business that covers both M&A advice as well as equity and debt capital markets work.

In contrast, Gresham, which was established in Sydney 22 years ago, has a highly specialised focus on the M&A sector. Gresham has a close relationship with Perth conglomerate Wesfarmers Ltd, reflected in its major transactions of the past year.

It advised Wesfarmers on its Coles bid and had a joint advisory role with ABN Amro on Wesfarmers’ successful $700 million acquisition of insurance firm, OAMPS.

The link with Wesfarmers goes back 30 years, when company founder John Gresham, then working for Rothschild, started advising the Perth-based conglomerate.

Wesfarmers provided seed capital when Mr Gresham set up his own firm.

Gresham’s Perth managing director Michael Ashforth said the link between the two firms was first and foremost a client advisory relationship.

“Some people assume we are hand in glove, but Wesfarmers has a team of about 20 people in their business development team,” he said.

“To think we are just part of the Wesfarmers group is wide of the mark.”

Gresham’s other WA clients last year included iron ore miner Murchison Metals Ltd, which recently negotiated a joint venture with Mitsubishi Corporation to develop new port and rail infrastructure in the Mid-West.

Gresham advised one takeover target – Summit Resources – and has been engaged by two potential takeover targets – West Australian Newspapers and scaffolding supplier PCH Group Ltd.

While Gresham’s Perth directors normally work for WA clients, Jenny Seabrook was engaged by Sydney-based HSBC Bank to sell its online broking business and margin lending book following her experience with the break-up and sale of JDV Ltd.

Azure’s main M&A client was Paladin, which completed the acquisition of Valhalla Uranium Ltd and Summit Resources.

Other clients included Agincourt Resources, Grange Resources and Macmahon Holdings.

The nature of advisory work means that not all engagements lead to a successful outcome.

Azure advised Mermaid Marine Australia Ltd on a merger agreement with P&O Maritime Services Pty Ltd but Mermaid subsequently decided it would not proceed.

Another Azure client, Home Building Society, completed a merger with StateWest Credit Society in 2006 but was forcefully rebuffed by canny Police & Nurses Credit Society chief executive Fred Huis when it tried to expand further.

Chief executive Mark Barnaba, who co-founded Azure with John Poynton and Geoff Rasmussen, said 2006-07 had been a very successful year, with plenty of work in both the M&A area and capital raisings.

It has advised Moly Mines Ltd, Lignor Ltd, Coogee Resources Ltd and Paladin on equity and debt financings.

“To have some capability on the arranging side, for debt and equity, is an important string to our bow,” he said.


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