Mega deals make a comeback amid a boon for mergers and acquisitions in FY24

But while the number of deals has increased, the total value of transactions remained subdued, according to research by global law firm Herbert Smith Freehills (HSF).

The Australian Public M&A Report 2024 compiled by HSF has identified 70 control transactions involving Australian targets listed on the ASX conducted via a takeover bid or scheme of arrangement in the 2024 financial year.

“The mega deals were back in volume in FY24 with 14 mega deals; this is almost twice the five-year average of eight,” says HSF partner Nicole Pedler.

“While the total deal value was relatively modest at $49.2 billion, activity was robust. Our data shows that there were 25 per cent more deals in FY24 than in the previous year, which is also 21 per cent higher than the five-year average.”

The report found that while private-equity bids were in line with the five-year average by number, the average value was slumped to $482 million compared with a five-year average of $1.1 billion.

Among the other key findings of the HSF report, which is in its 16th year, European and Japanese bidders made a strong return to the mega deals fray in FY24.

“The landscape was dominated by foreign bidders, with only two of the 14 mega deals involving an Australian bidder,” says Pedler.

“The number of European bidders was at a five year high, comprising 13 per cent of deals announced in the financial year.

“But more strikingly, European bidders represented 22 per cent of deals by value, which is significantly above the 1 per cent that they represented in FY23 and double the 11 per cent average for the preceding four years.”

Pedler notes that this indicates a “willingness” for larger deals among buyers, noting that Compagnie de Saint-Gobain’s $4.3 billion takeover of building products group CSR Ltd (ASX: CSR) as a prime example.

While interest from Asian bidders has been relatively subdued in recent years, the report reveals there was a spike to 17 per cent of bids in FY24 from just 4 per cent a year earlier.

“Japanese bidders emerged as a strong force, which we predicted last year,” says Pedler, noting that the largest deal of the year was the $9.1 billion acquisition of printed circuit board design software group Altium by Renesas Electronic Corporation.

The materials sector was particularly strong among the mega deals of FY24, which included Seven Group Holdings (ASX: SVW) unsolicited buy-out of the minority shareholders in Boral, CRH plc’s acquisition of Adbri and the deal for CSR.

HSF partner Jason Jordan says the explosion of mega deals in the materials sector is a departure from the trend of previous years.

“Despite only five deals in the materials space being announced in FY24, the sector still contributed almost 27 per cent to total deal value, and 60 per cent of deals in the sector were greater than $1 billion in value,” says Jordan.

“While the value of energy and resources deals declined as we move forward from the highs of FY23 brought by Newmont’s (ASX: NEM) scheme with Newcrest (ASX: NCM) and Brookfield and EIG’s proposed consortium buyout of Origin (ASX: ORG), the sector still produced another solid result.

“In particular, activity for gold, copper and nickel companies was strong, comprising 38 per cent of deals within the energy and resources sector.”

The HSF report has found that amid tighter market conditions, creative deal structures emerged during the year as bidders “sought to exclude unaligned assets from deals”.

“Bidders became increasingly selective towards the target assets being acquired and adopted a variety of structures to suit their selections, as we saw in BHP’s (ASX: BHP) proposed acquisition of Anglo American, KKR’s acquisition of Perpetual’s (ASX: PPT) wealth management and corporate trust businesses and Datasite’s acquisition of (data room software company) Ansarada Group (ASX: AND),” says Jordan.

“Some innovative reverse takeovers also emerged whilst Australian IPO activity was subdued in FY24. The use of reverse takeovers for medium and large-scale publicly listed entities marks a shift in market practice.”

In another key finding, bidders went into deals with a modicum of protection, as the report determined that more than 65 per cent of all deals involved some form of pre-bid stake or shareholder support that Jordan says often led to successful outcomes.

“The quantum of reverse break fees also built momentum on the back of the Newcrest-Newmont precedent, being right-sized to the risk profile, rather than reciprocating the size of target break fees,” he says.

After a strong run in FY24, HSF remains bullish on mergers and acquisitions for the year ahead on the ASX.

“There are a number of economic factors that could drive activity, such as early US rate cuts bringing back North American bidders, who were more subdued this year,” says HSF partner Kam Jamshidi.

“In times of slower economic growth, corporates focus on portfolio balancing, making sure that they are facing into core businesses that align best with strategy.

“Demergers and divestments tend to increase in these times. This will present a unique opportunity for private capital to pick up quality, established assets and grow their value away from public markets.”