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The energy transition is undeniably fuelling Australia’s public M&A, with resources assets the target for mega deals, and environmental, social and governance (ESG) considerations continuing to drive deal flow, according to experts in a new report from global law firm Herbert Smith Freehills (HSF), released today.

Now in its fifteenth edition, HSF’s Australian Public M&A Report 2023 examines the 56 control transactions involving Australian targets listed on the ASX that were conducted by way of takeover bid or scheme of arrangement in the 2023 financial year. 

The report found that the Energy and Resources sector was the primary driver for Australian public M&A activity in FY23, accounting for deals valued at A$64 billion and representing 85% of all deals by value ─ this was considerably higher than the A$11.8 billion that came from the sector in FY22.

The four largest deals of FY23 were all in the Energy and Resources space ─ Newmont’s proposed acquisition of Newcrest, Brookfield’s proposed acquisition of Origin Energy, BHP’s acquisition of OZ Minerals, and the proposed Livent and Allkem A$16 billion mega merger. HSF is acting on the Newcrest and Origin transactions.

In particular, target companies with exposure to future facing commodities including lithium, copper, zinc, graphite and nickel were in high demand.

HSF partner Kam Jamshidi explains, “In our 2021 report, we predicted that ESG would be a multi-year driver of M&A, and would play out in three phases ─ divestments, positioning for the future, and opportunistic acquisitions. We’re certainly seeing this come to fruition.

“The statistics show that the energy transition theme has entered its second phase, and bidders and targets are positioning for the significant opportunities available from the increased demand for raw materials and Australia’s planned transition to net zero. The good news is that this is a multi-year theme that has years left to run.

“In FY23, future-facing commodities were particularly popular, demonstrated by the mega bids for Newcrest, OZ Minerals, Alkem, and Mincor Resources. We expect this trend to continue in FY24 as bidders continue to position for the commodity-intensive energy transition.

“Investors looking to capitalise on the transition to net zero will continue to drive deal value as they look to grow their exposure to clean energy, either directly through renewable energy generation assets or indirectly through critical minerals such as copper”.

The report’s data shows that the energy transition is also driving foreign bidders back to Australian targets.

Jamshidi explains, “Australian public M&A volumes have remained robust, despite weaker global activity, thanks to our resources-heavy stock exchange. Australia is blessed with the resources and, importantly, represents an attractive jurisdiction for investors looking to deploy capital with confidence towards the clean energy transition.

“While there were still more Australian bidders by deal volume, FY23 saw signs of foreign bidder activity moving closer to pre-pandemic levels. North American bidders were particularly active in Australian M&A, representing 70% of all deals by value and 21% by number, suggesting a preference for large deals. That has in part been driven by an attractive exchange rate for those bidders.

“Consistent with FY22 and FY21, activity from Asian bidders was generally low in FY23, representing only 4% of deals by volume and 3% by value. We think activity from the region should pick up in the medium term, providing a further leg of growth for M&A activity.

Despite a complex economic backdrop, Australian public M&A activity was strong in FY23, with more ‘mega deals’ (deals valued at more than A$1 billion) and mid-market deals than the five-year average.

HSF M&A partner Nicole Pedler explains, “While the number of deals was in line with the five-year average, the value of those deals was 41% higher – this indicates a strong year, despite suggestions to the contrary.

“The data shows that FY23 had a good spread of large deals, with nine ‘mega deals’ versus the historic average of seven. We also saw an increase in the number of mid-market takeovers ─ there were 10 mid-market takeovers within the A$100 to A$500 million value range, compared to a five-year average of seven.

“FY22’s stratospheric heights were not the norm, and the M&A market has proven itself to be robust in FY23. It is a strong result considering the economic headwinds and share market volatility experienced over course of the year”.

The report also highlights the popularity of scrip mergers in FY23’s larger deals, with 41% of deals involving a scrip component.

Pedler says, “FY23 presented many challenges for bidders and targets ─ it was marked by market volatility, prolonged periods of economic uncertainty and rising interest rates, with the attendant higher cost of capital. Four of FY23’s nine mega deals were majority scrip, including Newcrest and Newmont’s agreed deal, which will become the third-largest public M&A deal in Australian corporate history.

“In a challenging market, scrip mergers may be particularly attractive as they allow bidders to pursue large scale acquisitions without the need to source acquisition funding. Scrip mergers also give target shareholders continued exposure to the assets in which they chose to invest, often with a sector scale or consolidation theme, which can be highly attractive to them.

Looking forward, HSF’s experts predict that 2024 will be a strong year for public M&A activity, with undeterred bidders continuing to pursue their wish-list targets.

Pedler adds, “High conviction deals will continue to flow, particularly consolidation and scale plays within sectors, as well as private equity deals for economically durable businesses tied to an aging population. Whether or not the deals break cover, get announced, and push forward will depend on a variety of factors.

“We predict that there will be even more contested targets in FY24 as investors look to deploy capital in high-quality assets, particularly targets in the technology sector or that have an ESG or energy transition theme.”

HSF’s experts also note the involvement of private capital in M&A next year.

Jamshidi explains, “The appetite for take-privates by private capital has not decreased, as it is a very efficient way of deploying large amounts of equity and isn’t reliant on vendors who may be less willing to bring assets to market.

“Ultimately, private capital can write deals with a backdrop of low or high interest rates, but they need rate certainty, which was absent in FY23. If the central bank signalling holds true and inflation comes under control, we think private capital will be much more active in FY24.

“In FY23, there were less infrastructure deals involving private capital, but we predict that this will be a short-term hiatus, as the theme of privatising long-life, stable cashflow assets will continue.

“Competition for listed assets will also continue to heat up in 2024, as the lack of IPOs over the past few years now means an increasing number of bidders are chasing a smaller pool of prospective assets. Private equity in particular has expanded the tool kit to deploy in competitive situations to respond to this dynamic”.

Other key findings of the report:

  • Overall success rates in FY23 dipped only slightly from the five-year high in FY22 ─ 80% of deals announced and completed as at the date of writing were successful, down from 83% in FY22.
  • The largest sectors by number of deals in FY23 were Energy and Resources (25 deals) and Information Technology (14 deals). This is consistent with FY22, where these were also the largest sectors represented by number of deals (21 and 11 deals respectively in FY22).
  • Consistent with the general trend, friendly deals in FY23 were more likely to be successful than unsolicited deals. That said, there was a record number of deals launched without target board support that succeeded in FY23, with 67% of all unsolicited deals that completed in FY23 being successful (compared to 40% in FY22 and 38% in FY21).
  • Cash was still the preferred form of consideration for friendly deals in FY23. Scrip was the preferred form of consideration for unsolicited deals in FY23. In particular, cash only consideration was offered in 65% of friendly deals. Unlike in previous years, scrip consideration was offered more prominently in unsolicited deals, with 70% of unsolicited deals offering some form of scrip consideration (and 60% scrip only).
  • Regulators were actively involved in transactions in FY23, with regulatory involvement present in 53% of all deals ─ in FY24, HSF predicts that regulators will continue to be actively involved in transactions, so deal participants would be wise to map out their strategy for obtaining regulatory approvals and not leave them to chance.

For a more information or a copy of the Report, click here

Key contacts

Nicole Pedler photo

Nicole Pedler

Partner, Sydney

Nicole Pedler
Kam Jamshidi photo

Kam Jamshidi

Partner, Melbourne

Kam Jamshidi

Media contact

For further information on this article please contact

Emily Coultas

Emily Coultas, External Communications Manager


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