The success rate for deal closures fell to 63 percent in FY2013, down from 81 percent in FY2012, according to a new study into Australian M&A.
This was one of the key findings of the latest iteration of the Herbert Smith Freehills Australian Public M&A Report, now in its fifth year. The finding reverses the trend of recent years where success rates increased year on year. In the energy and resources sector success rates fell to 71 percent last year, from 90% in FY2012.
“This is in stark contrast to the trend we have seen in recent years where announcing a takeover bid in Australia had almost automatically led to control passing in the target,” said report co-author and HSF partner Simon Reed. “This decrease brings success rates in deals traditionally difficult to execute, for example hostile deals and deals by unlisted foreign bidders, back to what we would consider more ‘normal’ levels.”
The report said that deal volume fell to 59 deals from 82 the previous year, while the value of deals dropped by A$50 million. Transactions most likely to be successful were those with deal components that included schemes of arrangement, premiums and less conditionality. It noted that nearly every scheme in FY2013 that reached the point of lodgement of a scheme booklet went on to close successfully, while bidders who offered control premiums of 40 percent or more were invariably more successful.
Other trends noted by Reed include a drop in the value of resources industry M&A, which was attributed to the end of a period of consolidation in the coal sector. The use of scrip consideration also rose from 23 percent to 43 percent of dealflow; the proportion of smaller (sub A$100 million) deals rose from 46 percent to 61 percent of overall dealflow and the use of “bear hugs” also declined.