Busy time for Australian M&A predicted as cheap stocks capture the market’s attention
Despite the gloomy headlines about recent volatility in world markets, there is a growing appetite predicted for M&A transactions both globally and in Australia in the coming year.Perhaps this goes against the gloomy media reports on the current environment but with the 8.6 percent slide in the Australian stock market seen in August, the value of companies is now being looked at even more closely by offshore buyers.
KPMG International’s Global M&A Predictor was launched last week and it certainly reflects this trend for the local market. In addition, the Australian dollar dipped below USD.70 last week and while this may spook those considering converting the Aussie dollar into overseas holiday money, the downward trend is a kind of ‘silver lining’ for the markets. The fall in our dollar is capturing the attention of offshore buyers looking at Australian acquisitions.
On the overseas front, the Global M&A Predictor included an encouraging forecast: forward P/E ratios (a measure of corporate appetite or confidence) were predicted to be up by 11 per cent to 30 June 2016. While this has not yet translated into actual transaction levels offshore, in Australia, there is a strong likelihood of more mega-takeovers such as the Japan Post acquisition of Toll.
This could be a good time for offshore funds and trade players to come in and acquire some Australian companies – ones that aren’t showing the growth they could be. It’s important to remember that our local M&A market is sophisticated and typically characterised by long-term investors. While the recent August reporting season saw some muted results which disappointed some shareholders, M&A buyers will take the view that it’s a good time to be looking for targets which aren’t as productive as they might be.
I am often asked what is good about a low growth environment from an investor point of view. The answer is that this is the kind of environment that may, in itself, trigger activity. People choose the inorganic growth path when they’re not achieving the growth they need in the local market through their own business’s usual activities.
Australia will benefit from the increase in interest from offshore players and funds as relative values have improved. So while the drop in our local currency may curtail overseas holiday plans for Australians, it is great news for value investors. In the coming months we may well see a speed up in their acquisition plans for listed Australian companies. That heightened activity will certainly be good news for the deals/takeovers sector.