TAKEOVERS + SCHEMES REVIEW 2020
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TAKEOVERS
+ SCHEMES
REVIEW
2020
G T L A W.C O M . A U
1
THE GILBERT + TOBIN 2020
TAKEOVERS + SCHEMES REVIEW
After a seven-year high in 2018, public M&A involving ASX-listed companies softened in
2019. Some key themes from 2019 were:
+ 41 transactions valued over $50 million were announced in 2019, down from 49 transactions
in 2018. The aggregate transaction value decreased significantly from $48.7 billion in 2018
to approximately $24 billion in 2019.
+ The healthcare sector made the greatest contribution to announced public M&A by value,
followed closely by retail & consumer services and industrial products.
+ Cashed up private equity firms sought out public M&A targets in a significant way, willing
to deploy approximately $10.3 billion on a range of targets in 2019, equivalent to 44% of the
aggregate transaction value.
+ While the number of transactions involving a foreign bidder was broadly the same as recent
years, the aggregate deal value attributable to foreign bids fell by more than half from
$42 billion in 2018 to $19 billion in 2019. Bidders from North America were the most active,
while interest from China was more subdued.
+ 89% of the total number of announced M&A transactions over $50 million were successful
in 2019, despite the slight drop in average final premium paid by bidders.
+ The Royal Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry ignited increased scrutiny and action by corporate regulators. The number of
ASIC enforcement actions increased by 20% and the Takeovers Panel heard 38 applications,
the second highest in its 20-year history.
This Review, which was released on 12 March 2020, examines 2019’s public M&A
transactions valued over $50 million and provides our perspective on the trends for
Australian public M&A in 2019.
We trust you will find this Review to be an interesting read and a useful resource.
2
CONTENTS
KEY HIGHLIGHTS 4
1 MARKET ACTIVIT Y 6
2 SECTOR ANALYSIS 10
3 TRANSACTION STRUCTURES 14
4 FOREIGN BIDDERS 16
5 CONSIDERATION T YPES 24
6 SUCCESS FACTORS 27
7 TRANSACTION TIMING 31
8 IMPLEMENTATION AGREEMENTS 34
AND BID CONDITIONS
9 THE REGUL ATORS 39
2019 PUBLIC M&A TRANSACTIONS 47
OUR APPROACH 49
ABOUT GILBERT + TOBIN 50
RECENT GILBERT + TOBIN TRANSACTIONS 51
ABOUT THE AUTHORS 56
AWARDS AND RECOGNITION 62
GILBERT+ TOBIN M&A PARTNERS 63
3
KEY HIGHLIGHTS
PRIVATE EQUITY AND RETAIL & CONSUMER
TRANSACTION ACTIVITY
SUPERANNUATION SERVICES AND HEALTHCARE
SOFTENS
FUNDS ACTIVE LED THE WAY
After a seven-year high for public M&A While overall activity may have been down, Healthcare and retail & consumer services
transaction activity in 2018, activity private equity continued to be a significant emerged as the top performing sectors by
softened in 2019 with a decrease in both source of activity in 2019, being the transaction value, contributing 27% and 21%
the value and number of transactions. 41 proponents in public transactions with a of total transaction value respectively. Retail
transactions valued over $50 million were value of approximately $10.3 billion last & consumer services represented 20% of
announced, down from 49 transactions in year. This represented 44% of aggregate the total number of transactions, while the
2018, representing a 16.3% reduction. transaction value (up from 28% in 2018) healthcare sector contributed 15% of the
and 24% of transaction volume (consistent transaction volume.
The aggregate transaction value decreased
with 2018). A range of PE houses were The energy and resources sector represented
significantly in 2019, with approximately
active in public deals in 2019 including 17% by number and 7% by value of public M&A
$24 billion in transactions announced,
BGH Capital, TPG, KKR, Brookfield, PEP, transactions in 2019, demonstrating a reduction
compared to $48.7 billion in 2018. This
Quadrant and Adamantem to name a few. in the contribution from this sector from 2018.
is the lowest aggregate transaction value
since 2013 and a fall of more than 50%
from 2018. This was primarily due to a
fall in the number large transactions, with
only 11 transactions valued at over $500
million announced in 2019, compared
to 21 in 2018. Even if one excludes the
~$13 billion unsuccessful offer for APA
Group in 2018, it is clear that there was
a significantly lower aggregate value of
public M&A transactions in 2019.
It is difficult to pinpoint the causes for the
fall. Perhaps, the federal election in May INTERESTINGLY, 2019 ALSO SAW
2019 had some part in it being a softer year.
Other potential reasons include greater SIGNIFICANT INVOLVEMENT OF
instability from geopolitical tensions and, on
the local front, greater regulatory scrutiny. AUSTRALIAN SUPERANNUATION FUNDS
IN PUBLIC M&A FOR THE FIRST TIME
In particular, AustralianSuper was a key part of the BGH Capital consortium’s
proposals for Healthscope and Navitas and used its significant shareholding to drive
the Navitas transaction. QIC Private Capital also made a successful public M&A
bid for Pacific Energy. This evidences superannuation funds’ shift from being purely
passive investors to active drivers of activity.
4
SUCCESS RATES UP &
VALUE OF FOREIGN SCHEMES INCREASINGLY REGULATORS
INVESTMENT FALLS THE TRANSACTION UNLEASHED
STRUCTURE OF CHOICE
Foreign investment activity in 2019 in Friendly / agreed acquisitions by scheme The Financial Services Royal
terms of deal volume was broadly the of arrangement are increasingly the Commission seemed to galvanise
same as recent years, with 56% of all preferred approach for bidders. public opinion and scrutiny of large
public deals over $50 million involving corporates further in 2019.
89% of the total number of announced
foreign acquirers compared to 59% in
M&A transactions over $50 million Regulators, including ASIC and
2018 and 63% in 2017.
were successful in 2019, representing APRA, which were criticised for
However, more strikingly, the aggregate a significant increase over 2017 where not taking stronger action sooner
deal value attributable to foreign bids only 70% of transactions reached a against misconduct, have stepped up
fell by more than half from $42 billion successful outcome and an increase over regulatory action.
in 2018 to $19 billion in 2019. 2018 where 80% were successful.
ASIC’s controversial ‘why not
Despite lower volumes and values, The increased use of schemes of litigate?’ approach has seen the
foreign bidders enjoyed higher success arrangement, particularly in high value regulator increase its regulatory
rates in 2019 with 95% of foreign bids transactions, is a continuing trend which presence with a 20% increase in the
succeeding compared to 76% in 2018. is strengthening. 83% of transactions number of enforcement actions over
over $50 million proceeded by way FY 2018-2019. It is also progressing
Notably, European bidders who
of scheme in 2019. This represents an criminal prosecutions in relation to
accounted for 12% of bidders by
18% increase over 2018, where 65% of three different M&A transactions,
transaction number in 2018 only
transactions over $50 million proceeded including most recently against Ms
represented 7% of bidders in 2019.
by way of scheme. Jan Cameron for allegedly failing to
However, interest from North
disclose a substantial shareholding
American acquirers increased in Transactions which proceeded by way of
interest in Bellamy’s Australia, which
2019, representing 29% of bidders by scheme enjoyed greater success rates in
was ultimately taken over by China
transaction number, up from 18% in 2019 with 90% of schemes succeeding
Mengniu Dairy Company last year.
2018. Asian acquirers represented 17% in 2019, compared to 72% in 2018.
of total bidders. The ACCC continues to be activist in
its approach to investigating mergers.
However, the ACCC also extended its
THE AGGREGATE DEAL VALUE losing streak in merger decisions before
the courts/tribunals to seven with the
ATTRIBUTED TO FOREIGN BIDS Federal Court recently allowing the
Vodafone/TPG merger to proceed.
FELL BY MORE THAN 50% TO The Takeovers Panel was also very
busy in 2019, hearing 38 applications.
$19 BILLION This was the second highest ever, as
the Panel comes to celebrate its 20th
birthday in March 2020.
5
1
MARKET ACTIVITY
Public M&A activity down after bumper 2018 However, and significantly, the number of transactions worth over
$500 million almost halved from 21 to 11 (albeit, it is worth noting
In last year’s Review, we reported that Australian public M&A that 2018 was an eight-year high in this regard). The decrease
activity was the highest it had been for the past seven years. in larger transactions overshadowed the slight increase in deals
At the time, it was noted that the federal election and expected between $50 and $500 million from 28 in 2018 to 30 in 2019.
tightening of regulatory oversight might dampen transaction When measured by aggregate transaction value, the fall in public
activity in 2019. M&A activity in 2019 appears even more pronounced, decreasing
It seems that cautionary note became reality in 2019. Although by more than 50% from 2018 levels to approximately $24 billion.
transaction activity was solid, transaction values failed to match This was a direct result of the marked decrease in higher-value
the highs of 2018. deals. Indeed, the number of $1 billion+ deals almost halved from
10 in 2018 to six in 2019, with no deals over $5 billion (unlike in
In total, there were 41 transactions valued at $50 million or more recent years). Interestingly, while large deals were done, the ASX
in 2019, representing a 16.3% decrease from the previous year but 200 increased some 15% in the 2019 calendar year. Perhaps
consistent with 2017 levels (which was a five-year high at the time). pricing in 2019 was too expensive for the liking of bidders?
Transaction announcements per year by number Total transaction value per year
60
Number of transactions announced
60
Total value of transactions ($ billion)
49 46.0 48.7
50 40
42 41 41 41.4
40 37 36 21
10 11 11 30
30
30 24 14 12 22.1 23.7 24.0
10 20 16.1
20 6 24.6
32 30 30
24 28
10 23 20 10
18
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019
$50m to $500m $500m+ transactions Total value of transactions
ALL SIX TRANSACTIONS Distribution of transaction values
EXCEEDING $1 BILLION > 5000 0
2
Value of transactions ($ million)
2
INVOLVED A FOREIGN BIDDER 1000 - 5000 3
6
8
5
This continues the trend from 2018 of foreign bidders 500 - 1000 6
11
23
being significant players in the highest value public M&A 100 - 500 23
20
transactions. 7
50 - 100 5
10
Overall, however, the proportion of foreign bids was lower in 0 5 10 15 20 25
2019 compared to 2018. More on this in Chapter 4. Number of transactions
2019 2018 2017
6
Private equity prominent again
Following a triumphant return by private equity in 2018, Notably, private equity again had a strong appetite for
private equity firms were once again strongly acquisitive in M&A in the healthcare sector in 2019, with 30% by
2019, as predicted in last year’s Review. number and 57% by value of overall private equity M&A
activity being in that sector, up from 17% by number and
While the proportion of private equity transactions by 15% by value in 2018. Private equity interest in retail &
volume remained similar to 2018 at 24% of all deals over consumer services also remained strong, albeit failing to
$50 million (10 deals in 2019 compared to 12 in 2018), match 2018 levels, accounting for 20% by number and
private equity bidders accounted for 44% of public M&A 24% by value of private equity investment, down from
deals by value, up from 28% in 2018 and only 2% in 2017. 34% by number and 32% by value.
HEALTHCARE RETAIL & CONSUMER UTILITIES
57% 24% 12% REAL ESTATE 4%
SERVICES
Healthscope Aveo Group Pacific Energy
($4.4 billion) Navitas ($1.3 billion) ($467 million)
($2.1 billion)
Metlifecare
($1.4 billion) QMS Media
($421 million)
Konekt
($74 million)
INDUSTRIAL FINANCIALS PROFESSIONAL
1%
PRODUCTS 1% 1% SERVICES
Pioneer Credit
Legend Corporation ($120 million – Dreamscape Networks
($79 million) current) ($105 million)
Percentage of PE investment across all PE deals, by value
7
Timing of announcements
There was a strong start to 2019, with seven transactions announced in January and February, including the $4.4 billion acquisition
of Healthscope by Brookfield.
As anticipated, public M&A activity slowed down in the second quarter with the federal election occuring in May. It is also
likely that foreign bidder activity slowed due to FIRB entering “caretaker” mode during the election period and not making any
significant decisions as per convention.
Timing of announcements
10 7,000
9 6,800
8 6,600
Number of Transactions
7 6,400
S&P/ASX 200
6 6,200
5 6,000
4 5,800
3 5,600
2 5,400
1 5,200
0 5,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018 2019 S&P / ASX 200 (2018) S&P / ASX 200 (2019)
Deal activity picked up after the election, particularly in July and October, where six transactions were announced in each of
those months, including:
Quadrant Private Equity’s PSP Investment’s Seven West Media’s QIC Private Capital’s
$421 million acquisition of $724 million acquisition of unsuccessful acquisition of $467 million acquisition of
QMS Media Webster Prime Media Group Pacific Energy
8
TRANSACTION HIGHLIGHTS
$1 BILLION+
+ Brookfield’s $4.4 billion acquisition of Healthscope
+ Nippon Paint’s $3.8 billion acquisition of DuluxGroup
+ BGH Capital consortium’s $2.1 billion acquisition of
Navitas
+ China Mengniu Dairy Company’s $1.5 billion acquisition
of Bellamy’s Australia
+ EQT’s proposed $1.4 billion acquisition of Metlifecare
+ Brookfield’s $1.3 billion acquisition of Aveo Group
$500 MILLION+
+ AP Eagers’ $836 million off-market takeover offer for
Automotive Holdings
+ Wesfarmers Lithium’s $769 million acquisition of
Kidman Resources
+ PSP Investments’ $724 million acquisition of Webster
+ Shell Energy Australia’s $617 million acquisition of
ERM Power
+ Fox Corporation’s $585 million acquisition of Credible
Labs Inc
9
2
SECTOR ANALYSIS
HEALTHCARE Key sectors
led the way in terms of aggregate deal In 2019, the healthcare sector led the way by value, contributing 27% of total
value, largely due to Brookfield’s transaction value, a significant increase from 10% in 2018. This was largely driven by
$4.4 billion acquisition of Healthscope the $4.4 billion acquisition of Healthscope by Brookfield and EQT’s $1.4 billion offer
(the largest transaction by value in 2019) to acquire retirement village provider Metlifecare just prior to the end of the year.
Activity in the healthcare sector was diverse with hospitals, veterinary clinics,
RETAIL & CONSUMER pharmaceuticals, aged care and OH&S all attracting investment. Deal activity
SERVICES in the healthcare sector increased slightly with six transactions in 2019 (up from
strongly represented in both five in 2018).
number of deals and aggregate Retail & consumer services came in second by deal value (21%), with industrial
transaction value products coming in third (17%), largely due to Nippon Paint’s $3.8 billion
acquisition of DuluxGroup.
ENERGY & RESOURCES The healthcare, industrial products and retail & consumer services sectors were
also the sectors with the three largest transactions by value.
continues to attract significant
public M&A activity by By number of transactions, retail & consumer services led public M&A activity
transaction volume in 2019, accounting for 20% of transaction volume. Energy & resources was the
second largest contributor to transaction volume (17%) followed by healthcare (15%).
HEALTHCARE REMAINED THE KEY SECTOR WITH 15% OF TRANSACTIONS BY
NUMBER AND 27% OF AGGREGATE TRANSACTION VALUE (UP FROM 10% BY
NUMBER AND 10% BY VALUE IN 2018)
Transactions per sector (number vs value)
30%
27%
25%
21%
20% 20%
17% 17%
15%
15%
10% 10%
10% 9% 9%
7% 7% 7%
5% 5% 5%
5% 3% 2%
2%
0% 1% 1%
0%
Transportation Professional Utilities Energy & Retail & Real Estate Food, Telecommunications Financials Healthcare Industrial
& Logistics Services Resources Consumer Beverage Products
Services & Tobacco
Proportion by number of transactions Proportion by total value of transactions
10Top transactions by sector
The top five transactions by value came from four different sectors:
1 2 3 4 5
Healthcare Industrial Products Retail & Consumer Food, Beverage and Healthcare
(Hospitals) (Construction Services Tobacco (Consumer (Aged care)
Materials) Staples)
Brookfield Asset Nippon Paint’s BGH’s successful China Mengniu Dairy EQT’s proposed
Management’s successful acquisition of acquisition of Navitas Company’s successful acquisition of
successful acquisition of DuluxGroup by scheme by scheme of acquisition of Bellamy’s Metlifecare by scheme
Healthscope by scheme of arrangement arrangement Australia by scheme of of arrangement
of arrangement arrangement
$4.35 billion $3.82 billion $2.09 billion $1.5 billion $1.44 billion
11Energy & resources Transactions in energy & resources and other key sectors
The energy & resources sector performed Healthcare (27%), retail &
well again in 2019 but saw a moderate 70%
consumer services (21%) and
industrial products (17%) by value
decline in the proportionate value and
60%
number of transactions.
50% 48% Utilities (34%) and real
46%
After contributing the greatest number of 38%
estate (21%) by value
M&A transactions in 2018, the energy & 40% 35%
32%
resources sector contributed the second 30% 27% 24%
29%
largest number of transactions (17%) 20%
13% 17%
in 2019. There were seven deals in the 10% 10% 9%
10%
sector in 2019, down from 14 in 2018. 4% 7%
1%
0%
The sector contributed 7% to the 2012 2013 2014 2015 2016 2017 2018 2019
aggregate value of transactions, slightly Energy & Resources (by number) Energy & Resources (by value)
down from 9% in 2018.
2019’S STANDOUT Wesfarmers Lithium’s $769 million Independent Group’s ultimately
TRANSACTIONS IN THE SECTOR acquisition of Kidman Resources by unsuccessful $320 million hostile bid
INCLUDED: scheme of arrangement for Panoramic Resources, one of the
few old-fashioned hostile bids in the
market last year
12Sectors of interest for foreign bidders
56% of the transaction volume in 2019 involved foreign bidders.
In 2018, there was significant foreign interest in energy & resources, real estate and financials, while 2019 saw strong foreign
interest in healthcare, retail & consumer services and industrial products.
In terms of value, the healthcare sector represented 33% of the total value of foreign bids, largely attributable to the $4.4 billion
acquisition of Healthscope by Brookfield and EQT’s proposed $1.4 billion acquisition of Metlifecare. This was followed by industrial
products (with 21.3% of foreign bids by value), which was mainly due to Nippon Paint’s $3.8 billion acquisition of DuluxGroup.
Key sectors for foreign bidders
10
9
8
Number of bidders
7
7
6 6
5 5
5
4 4
4 3 3
3
2 2 2 2
2
1 1 1 1 1 1 1 1
0 0
Healthcare Retail & Consumer Industrial Professional Energy Food, Beverage Real Utilities Financials Telecommunications
Services Products Services & Resources & Tobacco Estate
2018 2019
133
TRANSACTION STRUCTURES
Schemes continue to be the preferred transaction structure
In 2019, 83% of all transactions valued over $50 million proceeded by way of scheme of arrangement as opposed to takeover
bid. This is a significant increase from 2018 where 65% of transactions were undertaken by scheme. It continues and amplifies
the long-term trend we have observed over recent years.
As the graph below reflects, the historical “50/50” nature of the takeover or scheme divide is well and truly behind us. Bidders
and targets alike now prefer the transaction and timetable certainty offered by a scheme. This is particularly relevant for private
equity firms which generally need to undertake due diligence and acquire 100% of a target to obtain financing.
Schemes v takeovers ($50m+) Schemes v takeovers ($1b+)
2019 50% 83% 17% 2019 50% 100%
2018 65% 35% 2018 100%
2017 63% 37% 2017 80% 20%
2016 67% 33% 2016 83% 17%
2015 46% 54% 2015 83% 17%
2014 49% 51% 2014 45% 55%
Schemes ($50m+) Takeovers ($50m+) Schemes ($1b+) Takeovers ($1b+)
The preference for schemes of arrangement over takeover bids continues to be more pronounced for transactions valued over
$1 billion. As in 2018, all transactions exceeding $1 billion announced in 2019 were structured as schemes. As one would expect,
the greater the amount of capital at risk, the more a bidder needs to do due diligence, is likely to have third party financing and
will therefore prefer the certainty of outcome offered by a scheme.
Pre-bid stakes
The considerable majority of bidders using a takeover bid (rather Where the bidder has a large pre-bid holding, the choice
than a scheme) in 2019 had a pre-bid shareholding in the target of takeover bid over scheme of arrangement is generally
prior to announcement of the transaction. 71% of takeover understandable given that the acquirer is unable, in the
bids involved a bidder who held (or acquired) a physical pre- context of a scheme, to vote its shares at the shareholder
bid holding in the target. The size of these stakes ranged from meeting to approve the transaction. That said, eight bidders
Independence Group’s 4% pre-bid shareholding in takeover with pre-bid stakes of 10% or more still opted to proceed by
target Panoramic Resources through to Grafton Health way of scheme rather than takeover bid in 2019 (potentially
Holdings’ 93% pre-bid shareholding in Orion Health Group. because an all-or-nothing outcome was required).
14Hostile bids a thing of the past?
Only 5% of all transactions in 2019 were commenced on a hostile or unsolicited
basis, down from 12% in 2018 and 20% in 2017. This trend is perhaps
unsurprising given:
+ The increasing preference of bidders for schemes of arrangement, which are
necessarily friendly as they require the cooperation of the target’s board.
+ The general acceptance of confidential non-binding indicative offers and bear
hugs (involving a scheme of arrangement) as a way of progressing unsolicited
approaches. The lack of a put up or shut up rule in Australian takeover laws
means an unwelcome unsolicited approach can pressure a target over many
months without having to formally make a takeover bid.
Of the two hostile bids in 2019, the largest was the ultimately successful $836
million off-market takeover of Automotive Holdings Group by AP Eagers.
Independence Group’s withdrawn offer to acquire Panoramic Resources is the other
notable hostile bid made during 2019.
Hostile v Friendly
100%
80%
% of Transactions
60% 58%
76% 80% 80%
88% 95%
40%
20% 24% 42%
20% 20% 12% 5%
0%
2014 2015 2016 2017 2018 2019
Hostile Friendly
No on-market bids in 2019
On-market takeover bids remain very rare in the Australian market. In 2019,
there were no on-market takeover bids valued over $50 million (down from two in
2018 and one in 2017).
154
FOREIGN BIDDERS
Data
A year of consolidation
Like various other countries, FIRB has been increasing its focus on the protection of
As far as Australia was concerned, 2019 sensitive data. This will only increase as data proliferates in, and between, businesses.
was a year of consolidation when it
came to foreign investment. The type of data that may need to be protected includes personal data of Australian
residents and citizens (eg acquisitions in the healthcare sector), government /
In 2019, the Foreign Investment national security data and data / information relating to critical infrastructure. FIRB
Review Board (FIRB), and has also had to consider an increased number of foreign investment proposals
associated agencies like the Critical seeking to acquire data centres and other facilities that house, or have access to,
Infrastructure Centre and government sensitive private data.
departments concerned with national
security (as well as tax), continued to Of course, the concern for malicious actors to access, and exploit, sensitive data is a
deepen their oversight and review of general concern in these times.
foreign investment. That said, in 2019,
unlike previous years, there were THE FIRB APPROACH HAS GENERALLY
no high-profile foreign acquisitions
in sensitive industries, no public
BEEN TO MITIGATE THE POTENTIAL
rejections of applications for FIRB PROBLEMS THROUGH THE DEVELOPMENT
approval and no particular foreign
investment controversies. Perhaps
OF DATA SECURITY CONDITIONS RATHER
this was a result of fewer large foreign THAN OUTRIGHT PROHIBITION
acquisitions, challenges in the banking
industry (post Financial Services
Royal Commission), no large cross
border deals in the energy & resources
sector and generally reduced Chinese
state-owned investment. In any case,
the lack of controversy was no doubt
welcome to the Government in a
federal election year.
ALL IN ALL, WE
CONSIDER 2019
TO BE A YEAR OF
CONSOLIDATION
That said, there were a few areas of
development which are worth noting.
16THE FIRB DATA SECURITY CONDITIONS HAVE GENERALLY FOCUSSED ON:
Continued focus on
THE TYPES
of data people can access taxation matters
FIRB consults with the Australian
Taxation Office (ATO) during the
WHO approval process. The ATO has in
may access the data recent years increased its focus on
multinational tax avoidance.
WHERE While not in the context of foreign
can they access the data from acquisitions, the ATO’s focus
was evident in the recent $481.5
million settlement with Google
WHERE in respect of its tax practices
the data is physically stored (for example, if it is stored in the cloud, there between 2008 and 2018. This
are some cloud service providers that are on a government “white list”) brings tax settlements in the last
two years between the ATO and a
range of multi-nationals including
Firstly, the drafting of the conditions could be improved by defining key terms. Microsoft, Apple and Facebook to
Secondly, the conditions can significantly impact the way a business is operated if approximately $1.25 billion.
they are not thoroughly thought through. For example, there is often a condition It has become the usual practice
preventing sensitive information being accessed from offshore. This can cut across for large foreign acquisitions
the way a target business is currently run if they have an offshore call centre that to face a range of standard
provides customer service. In this respect, it is important for the target to be more tax conditions around their
involved in the FIRB approval process, and particularly in negotiating the terms of structuring, ongoing reporting and
any conditions, than may otherwise be the case so they can ensure the business can general compliance.
continue to be run in an optimal manner post acquisition.
Consultation with the ATO can
The increasing importance of data may mean that the government will before long also prolong the approval process.
need some more specific legislation about the protection of data. Stating the obvious,
these threats and issues do not only apply to businesses in the process of acquisition by
foreigners. In this respect, using the foreign investment rules for the protection of data
is a suboptimal approach.
17Decreased Chinese interest Chinese state-owned investment (and private investment with close Clearly it is important that relations do improve as China is links to the Chinese state) has always been a vexed issue for FIRB. Australia's largest two-way trading partner, by quite some FIRB has been at pains to say its approach to considering margin. Chinese companies are also the fifth largest holder applications for approval is non-discriminatory as to jurisdiction of foreign direct investments in Australia. The Australian of acquirers (as distinct from the nature of the acquirers). Government’s approach to the coronavirus outbreak may also However, it is clear this is an issue. For example, in relation to test relations and will be critical for many businesses, including the assessment of data protection, there is going to be much the education sector. more attention when it is a Chinese foreign government investor In recent years, China has been Australia’s largest source of compared to an American private equity fund. proposed foreign investment year-on-year, except for 2018, Indeed, the FIRB chairman, David Irvine, has sought to when the US was the largest source country for that year. improve the public relations on FIRB’s approach to Chinese While official statistics have not been released for 2019 as yet, investment by giving two public presentations in the second it is clear that the incidence of acquisitions of Australian public half of 2019 to Chinese investment orientated organisations. companies by Chinese investors is much lower. That said, this He sought to highlight that Australia seeks to encourage is also attributable, in some part, to global conditions and the Chinese investment, pointing to various approvals over time. impact of Chinese capital controls. This is despite tension around Sino-Australian investment Indeed, large foreign acquisitions in 2019 seem to have been relations caused by the prohibition on Huawei equipment in dominated by US and Canadian companies (including Brookfield Australia’s 5G rollout and rejections of acquisitions in the for Healthscope and Aveo). Interestingly, there was a renaissance in energy & resources sector in recent years. China Mengniu Japanese acquisitions in 2019, including Asahi’s $16 billion acquisition Dairy Company’s $1.5 billion acquisition of Bellamy’s, of Carlton & United Breweries, Nippon Paint’s $3.8 billion takeover Australia’s leading organic infant formula business, is a recent of DuluxGroup and Nippon Paper’s $1.7 billion purchase of Orora’s example of a Chinese acquisition that was approved in 2019. Australasian cardboard box manufacturing business. THE FIRB CHAIRMAN, DAVID IRVINE, HAS SOUGHT TO IMPROVE PUBLIC RELATIONS ON FIRB’S APPROACH TO CHINESE INVESTMENT BY HIGHLIGHTING APPROVALS OVER TIME 18
Timing
Anecdotally, the speed of the FIRB approval process for That all said, in FIRB’s view, despite numerous complaints
large or sensitive matters slowed in 2019. This is generally about timetables, 80-90% of FIRB decisions are reached and
considered to be a function of the increased scrutiny from communicated within the initial 30-day review period.
government agencies arising out of the wider consultation
FIRB does accept that more complex cases take longer, particularly
FIRB now undertakes.
for acquisitions that raise novel issues (eg with data) or where the
In addition, in 2019, the government entered caretaker mode government itself is in the process of finding solutions. David Irvine
ahead of the federal election in May, which may have slowed has stated “that a great majority of decisions are made within that
the overall approval process during that time. On a related statutory period is a good indication that, if there is a delay, there
matter it should be noted that the re-election of the Liberal is usually a good reason for that delay. We have to balance the
government has resulted in a largely unchanged approach to need for quick decision making with the need for correct decision
foreign policy. Nevertheless, the increased scrutiny, especially making” and that “FIRB’s role is to facilitate, not to obstruct foreign
on tax and data matters, is likely to mean approvals will not investment. If it is taking longer, it is often because we are searching
happen any quicker in 2020. for a method to facilitate”.
19Worldwide trend Australia is not alone in recognising and responding to national security challenges. It is definitely part of a worldwide trend to more closely scrutinise foreign investment and to protect one’s borders. For example: + In the US, the Trump administration has broadened and strengthened the remit of the Committee on Foreign Investment in the United States (CFIUS) with respect to national security matters in response to growing concerns over the trade and industrial policies of certain foreign countries (especially China). This is aimed at increasing CFIUS’s existing authority to review and potentially block or unwind investments in US businesses and critical US technology, infrastructure, personal data and real estate that may give rise to US national security concerns. + In October 2019, the UK Government announced plans to introduce new legislation to strengthen the government’s existing powers to scrutinise and intervene in transactions on national security grounds. The government has indicated that the proposed legislation will create a UK-wide notification system for transactions which may have security concerns and give the government powers to apply conditions to a transaction, or to block it altogether. Interestingly, the UK recently and controversially agreed to allow Huawei to have a restricted role in building Britain’s 5G network notwithstanding intense lobbying from the US Government to ban Huawei involvement. + Japan has expanded the scope of sensitive sectors for which notification is required – covering an additional 20 new industries including software relating to information processing. The government has also approved further restrictions on foreign investment on national security grounds, including lowering the threshold in sensitive companies from the current 10% to 1% (which will take effect from April 2020). + China has also introduced a unified foreign investment screening regime (replacing three existing regimes), which includes the establishment of a national security review regime. 20
Public M&A transactions in 2019
Foreign bidder activity in 2019 was broadly in line with the long-term average in terms That said, when one considers the largest
of deal volume, slightly decreasing to around 56% of public M&A transactions over public M&A transactions last year, the
$50 million being made by foreign bidders from 59% in 2018. One could say this was importance of foreign investment remains
the second annual decrease in a row in terms of volume, but then this just takes us clear. All public M&A transactions in 2019
back to where we were in 2015 (which was also above 2016). So, we think it is another with a value of $1 billion or more involved
year which is consistent with the long term average of between 50% and 70%. foreign bidders. The largest foreign bidder
transactions in 2019 were:
Foreign bidders by number of transactions
+ Brookfield’s $4.4 billion acquisition of
80% Healthscope;
70%
63% + Nippon Paint’s $3.8 billion acquisition
60% 59%
54%
56% of DuluxGroup;
50% 49%
+ BGH Capital consortium’s $2.1 billion
40% acquisition of Navitas;
30% + China Mengniu Dairy Company’s
20% $1.5 billion acquisition of Bellamy’s
10% Australia;
0% + EQT’s proposed $1.4 billion acquisition
2015 2016 2017 2018 2019 of Metlifecare; and
However, the same cannot be said in terms of aggregate transaction value. + Brookfield’s $1.3 billion acquisition of
The value of foreign investment decreased significantly in 2019 compared to 2018, Aveo Group.
with a reduction of more than $23.3 billion in foreign investment to a total of It was a busy year for Brookfield in
$19 billion. In fact, the value of foreign investment in 2019 was lower than in 2016. that it was responsible for two of the
top foreign bids. BGH Capital was also
Foreign bidders by value involved in two of these transactions,
2016
with BGH Capital and AustralianSuper
23.8
making the initial approach for
Healthscope. While the principals of
2017 36.7 BGH Capital are Australian based,
we have categorised the BGH Capital
2018 42.3 consortium acquisition of Navitas as
foreign due to its foreign consortium
members and investors and the need for
2019 19.0 FIRB approval, which is not uncommon
with private equity backed bids.
5 10 15 20 25 30 35 40 45
$ billions
21Where did the bidders come from?
As illustrated in the world map (below), in 2019 foreign bidders came from a range of continents and jurisdictions including Asia,
North America, the UK, Sweden and New Zealand. However, when you break it down some more, there are some interesting
themes in this:
+ North America, that is the US and Canada, with six deals each, + Japan has had a resurgence in acquisitions of Australian
continues to dominate foreign investment. The increase in companies, perhaps driven by low cost debt and also low growth
transactions involving North American bidders was largely due in Japan;
to active Canadian pension funds seeking to invest in Australia,
+ While China has had a reduced interest in Australia in recent
particularly in infrastructure, real estate and adjacencies;
times, Chinese companies still had two successful acquisitions in
+ Asian bidders came from a variety of countries including Japan, 2019; and
South Korea and China;
+ European investors were behind three transactions.
China: Hong Kong listed
China Mengniu Dairy
Company’s $1.5 billion
acquisition of Bellamy’s
Sweden: EQT’s Australia
Canada: Brookfield’s
proposed Shanghai listed Chengtun $4.4 billion acquisition
$1.4 billion Mining Group’s $109 of Healthscope and 29%
acquisition of 7% million acquisition of $1.3 billion acquisition
Metlifecare Nzuri Copper of Aveo Group
NORTH
Japan: Nippon Paint’s
EUROPE 15% AMERICA
$3.8 billion acquisition
of DuluxGroup
UK: FNZ’s
$268 million
contested acquisition ASIA 5% US: The acquisitions
of GBST Holdings of Credible Labs Inc
Shell’s $617 million AP Eagers’ $836 million takeover OTHER ($585 million) and
acquisition of ERM of Automotive Holdings Gazal Corporation
44% BGH Capital consortium’s ($268 million)
Power Wesfarmers Lithium’s $769 million
$2.1 billion acquisition of Navitas
AFRICA acquisition of Kidman Resources SOUTH
Grafton Health’s $107 million AMERICA
acquisition of Orion Health
AUSTRALIA
22Proportion of bidders by region over time
Foreign bidders’ success rates
60%
Australia reach new high
50%
North America Foreign bidder success rates in public M&A
40% transactions reached their highest in the
Asia
30% time we have been publishing our Review
Europe (almost 10 years).
20%
10%
Other 95% OF ALL ANNOUNCED
Africa PUBLIC DEALS OVER $50
0%
2014 2015 2016 2017 2018 2019 MILLION INVOLVING
FOREIGN BIDDERS
As was the case in 2018, foreign bidders made up a larger share of the public SUCCESSFULLY COMPLETED.
M&A transactions from a transaction value perspective (compared to transaction THIS WAS ABOVE 2018’S
number). While North American bidders accounted for 29% of transactions by
number, they accounted for 36% of aggregate transaction value. Similarly, while
SUCCESS RATE OF 76% AND
Asian bidders accounted for 15% of transactions by number, they accounted for OUTDID THE PREVIOUS
25% of aggregate transaction value. HIGH OF 92% IN 2016.
However, it is also interesting to see that Australian bidders accounted for 21% of the That said, this higher success rate may
aggregate transaction value in 2019, increasing from just 14% in 2018. in part be reflective of the way deals are
done today. That is, there is a general
Given the ongoing subdued Chinese outbound direct investment and the trend away from hostile/unsolicited bids
continued (Australian government and media) sensitivity towards Chinese to friendly/agreed transactions and also a
foreign investment, and the increase in private equity bids (with readily available general increase in confidential non-binding
pension/superannuation and debt funding), it will be interesting to see if there is a indicative offers which may not become
continued shift away from Asian to North American bidders. public if rejected.
The largest number of foreign bidders from individual countries were: Foreign bidder success rates
2014 80%
Canada
UK 2015 67%
6 deals
2 deals
United States China 2016
Japan 92%
6 deals 2 deals
3 deals
2017 74%
THE KEY FOREIGN PLAYERS IN 2019 WERE NORTH 2018 76%
AMERICAN BIDDERS, WITH THE DECREASE IN ACTIVITY
2019 95%
OF CHINESE BIDDERS OVER THE LAST TWO YEARS
CONTINUING IN 2019
235
CONSIDERATION TYPES
Use of cash consideration at an Combination consideration
all-time high There were no transactions which had a
83% of transactions in 2019 gave target consideration structure which offered target
shareholders the option to receive all cash shareholders a fixed combination of both
consideration, up from 71% of transactions in cash and scrip with no all cash alternative.
2018. This is the highest percentage we have This was down from 8% of transactions
identified in the past ten years. It may, in part, announced in 2018 which offered a
be attributable to the increased activity of combination of cash and scrip.
private equity bidders, and the relatively cheap
debt funding available to bidders.
HOWEVER, THERE WERE
FIVE TRANSACTIONS
Schemes remained the preferred structure
for cash transactions, making up 88% of WHICH GAVE
Cash reigns supreme! transactions offering all-cash consideration. SHAREHOLDERS THE
The preference for cash Interestingly, only 57% of takeover bids offered OPTION TO ELECT
consideration amplified in solely cash, down from 82% in 2018 (marking a EITHER SCRIP OR CASH
2019, with the percentage of continued decline in all-cash bids from 2017).
transactions comprising all- CONSIDERATION
cash consideration Once again, consistent with 2018, there was a
This included the successful acquisition by
INCREASING TO
preference for the certainty of cash among the
Sandfire Resources of MOD Resources via
larger transactions: the largest five successful
83% transactions announced in 2019 offered all-cash
scheme of arrangement, which offered the
option to elect either scrip consideration of
consideration as a possible election.
0.0664 Sandfire share for every 1 MOD
AP Eagers’ $836 million acquisition of share or cash consideration of A$0.45 per
THERE WERE Automotive Holdings Group was the largest MOD share, subject to an aggregate cash
NO TRANSACTIONS transaction using a scrip consideration structure. cap of $41.6 million.
WHICH OFFERED TARGET
SHAREHOLDERS A FIXED
COMBINATION OF BOTH Types of consideration by number of transactions
CASH AND SCRIP. 100% 8% 13% 15% 8% 17%
21%
80% 22% 13% 15% 21%
18%
60% 83%
40% 74% 70% 71%
70%
61%
20%
STUB EQUITY
CREATIVITY REMAINED 0%
2014 2015 2016 2017 2018 2019
UNDER THE SPOTLIGHT.
Cash Scrip Combination
24Stub equity creativity under the spotlight Anecdotally, there were many
conversations with potential bidders in
Two transactions in 2019 involving Brookfield sought to provide flexibility for all target the first half of 2019 about stub equity
shareholders by incorporating a stub equity option into the consideration structure as follows transactions. Brookfield’s acquisition
of Aveo Group was an example where
BROOKFIELD'S ACQUISITION OF all shareholders had a chance to
exchange their Aveo shares for shares
Healthscope Aveo Group in the private equity bidding vehicle.
BY SCHEME OF ARRANGEMENT BY SCHEME OF ARRANGEMENT The Navitas transaction offered scrip
in the bidder’s HoldCo, although only
$2.50 cash per target share. Healthscope $2.195 cash per target share inclusive of to consortium members who held
shareholders could elect to receive shares a $0.045 dividend. Aveo shareholders target shares.
in the Bidco parent if more than 10% of could elect to receive units in a Bermudan
Healthscope shareholders elected the limited partnership which would hold class In June 2019, ASIC proposed in
scrip option. There was a cap on these B shares in the TopCo if more than 10% Consultation Paper 312 significant
elections representing 45% of the total of Aveo shareholders elected the scrip restrictions to address its concerns
issued share capital of Bidco, with a pro option. There was cap on these elections that certain stub equity structures
rata scale back mechanism to apply if the representing 30% of the total issued share run counter to the underlying policy
cap was reached. Ultimately, less than capital of TopCo, with a pro rata scale back provisions governing proprietary
0.01% of shareholders elected the scrip mechanism to apply if the cap was reached. companies (ie their shares are generally
option, and so no scrip was issued. Ultimately, 16.9% of shareholders elected required to be closely held and they
scrip and none were scaled back. are subject to lower disclosure and
governance requirements than public
companies) and deny retail investors
important protections.
A further two transactions sought to provide scrip consideration to select
shareholders (management/consortium members), who formed a separate class of Submissions were made by G+T
shareholder when voting on the scheme of arrangement. and others that existing disclosure
exemptions are appropriate and that
PVH’S ACQUISITION OF BGH’S ACQUISITION OF requiring a public company structure
would result in bidders using a foreign
Gazal Corporation Navitas entity as the acquisition vehicle
taking it outside the application of
BY SCHEME OF ARRANGEMENT BY SCHEME OF ARRANGEMENT the Corporations Act where fewer
$6.00 cash per target share, however Cash of $5.825 per target share, however protections for retail shareholders
certain members of management were consortium members who held target may be available. As at the date of this
required to rollover their shares in Gazal shares rolled over their shareholdings into publication, ASIC has not released
into shares in the BidCo parent. HoldCo shares. anything further on its proposals in
this regard.
25Consideration structures
$228 million $320 million $836 million
$86 million $167 million Panoramic $617 million $4.4 billion
URB MOD Resources Echo Resources Automotive $2.1 billion
Resources / ERM Power / Healthscope /
Investments / / Sandfire / Northern Star Holdings / AP Navitas / BGH
Independence Shell Energy Brookfield
360 Capital Resources Resources Eagers
Group
$200M $400M $600M $800M $1B
$5B+
$769 million
$109 million
$192 million $421 million Kidman $1.3 billion $3.8 billion
Nzuri Copper $268 million
Xenith IP QMS Media / Resources / Aveo Group / Dulux / Nippon
/ Chengtun Gazal / PVH
Group / IPH Quadrant Wesfarmers Brookfield Paint
Mining
Lithium
Cash Scrip Equity to select shareholders Stub equity
Sources of funding Sources of funds
The chart (right) shows that the cash 77% 82% 79%
62%
consideration for public M&A came from
40% 41%
a variety of sources. While the majority of
bidders continue to fund their acquisitions 9% 8% 6%
using at least a portion of existing capital,
New acquisition
the number of transactions establishing Equity capital raising Existing reserves /
facilities
new acquisition facilities (predominantly, corporate facilities
secured debt facilities) increased from 2017 2018 2019
41% in 2018 to 62% in 2019. It seems that For example:
bidders are much more prepared to borrow
to undertake acquisitions and is likely to also + Healthscope / Brookfield
reflect the increased number of private equity $4.4 billion funded from existing cash reserves and senior secured syndicated
transactions. facilities as well as bridging finance
Larger deals continue to use a mix of funding + DuluxGroup / Nippon Paint
sources. $3.8 billion funded by a new unsecured debt facility
Interestingly, there has been a continued + Navitas / BGH Capital consortium
decline in the proportion of bidders $2.1 billion funded by existing cash reserves and new secured debt facilities
undertaking equity capital raisings to fund + Bellamy's Australia / China Mengniu Dairy Company
their acquisitions. $1.5 billion funded by term loan facility
266
SUCCESS FACTORS
Significant increase in success rates Takeovers and schemes equally successful
89% of all concluded public M&A transactions over Success rates were broadly similar for schemes and takeovers in
$50 million were successful in 2019. This represents an 2019, with 90% of schemes and 86% of takeover bids (with a
increase over the success rate in 2018 of 80%. transaction value exceeding $50 million) delivering a successful
High value transactions (ie those valued above $500 million) outcome. In comparison to 2018, this reflects a higher success
enjoyed a 100% success rate, significantly up from 76% in 2018 rate for schemes (72% in 2018) but a lower success rate for
(and the highest we have observed since 2014). Transactions takeovers (94% in 2018).
ranging from $50 million to $500 million were less successful
in 2019, falling from 82% in 2018 to 77% in 2019.
Success rates Success rates for takeovers v schemes
100%
100% 91%
85% 89%
90% 83% 82%
80% 76% 80% 77%
80% 70% 94%
2018
70% 62% 72%
60%
50%
40% 86%
30% 2019
90%
20%
10%
0%
2016 2017 2018 2019 0% 20% 40% 60% 80% 100%
$50m to $500m $500m+ All $50m+ Scheme Takeover
The success rate for 2019 does not include four transactions which were current at 1 March 2020. The success rates for 2016 to 2018 have been updated to reflect the ultimate outcome of all
transactions which were analysed in those past Reviews.
It is interesting to consider the circumstances in which Breach of defeating conditions, lack of major
transactions were not successful in 2019: shareholder support and adverse board recommendation
(notwithstanding favourable independent expert’s report)
Transactions not approved by requisite majorities of shareholders
+ Independence Group’s proposed acquisition of
+ Charter Hall / Abacus’ proposed acquisition of Australian
Panoramic Resources by takeover
Unity Office Fund
Particularly noteworthy is that three of the four unsuccessful
+ Seven West Media’s proposed acquisition of Prime Media Group
transactions in 2018 were board-recommended schemes,
Adverse independent expert’s report following a board two of which were voted down by shareholders. This is
recommendation a timely reminder of the importance of ensuring key
+ PharmaCielo’s proposed acquisition of Creso Pharma by scheme shareholders are supportive of the transaction.
27Friendly transactions enjoy significantly Decrease in premiums
higher success rate The average final premium paid by bidders has decreased to
In 2018, we were somewhat surprised to see hostile takeovers 39% in 2019 after a five-year high of 50% in 2018. This makes
enjoy higher success rates than friendly transactions (83% vs the 2019 result more consistent with the size of premiums
79%). in years prior to 2018. That being said, the data for 2018 was
significantly skewed by five transactions featuring premiums of
In 2019, we saw a return to normal – significantly higher more than 100%, two of which were more than 200%. When
success rates for friendly transactions (91%) as compared we exclude those outliers, average premiums in 2018 would
to hostile takeovers (50%). That said, it is relevant to note have been 36%, which is slightly below 2019 levels.
that there were only two hostile bids in 2019, with one being
successful (AP Eagers’ bid for Automotive Holdings Group) Perhaps counter-intuitively, despite the drop in premiums in 2019
and the other one unsuccessful (Independence Group’s as compared to 2018, success rates were up on the prior year.
bid for Panoramic Resources). So, in respect of hostile More conventionally, it makes sense that the premiums in three
takeovers, the data is a product of a very small sample size. of the four unsuccessful transactions in 2019 were 15% or below,
making them among the lowest of all transactions in the data set.
Success rates for friendly and hostile transactions Average premiums paid
100%
100% 91%
88% 60%
90% 83%
76% 79%
Average premiums paid %
80% 55%
70% 67% 51%
50%
60% 50%
50% 50%
50% 43% 45%
40% 40% 41%
30% 40%
39%
20% 35% 33%
10%
0% 30%
2015 2016 2017 2018 2019 2017 2018 2019
Friendly Hostile All $50m+ transactions $500m+ transactions
Transactions by final premium grouping
10
10
8
8
Deal count
6
4 4 4 4
3
2 1 1 1
0 0
0% to 10% 10% to 20% 20% to 30% 30% to 40% 40% to 50% 50% to 60% 60% to 80% 80% to 100% 100% to 130% 130% & above
28Only one deal from 2019 featured in the list of the highest 10 The top 5 five premiums for 2019 were paid in the following
premiums offered over the past five years, being the 141% paid by successful transactions (all structured as schemes of
Advanced Personnel Management for Konekt. arrangement):
Top 10 transactions by premium offered in past five years Top five premiums offered in 2019
275%
1 PT Bayan Resources TBK’s successful $515 million acquisition 141%
of Kangaroo Resources by scheme of arrangement Advanced Personnel Management’s
233% $74 million acquisition of Konekt
2 Zijin Mining Group’s proposed $90 million takeover bid for
Nkwe Platinum
213%
3 TIO’s successful $73 million takeover bid for Flinders Mines 95%
FNZ Group’s $268 million
177% acquisition of GBST Holdings
4 Merck & Co’s successful $502 million acquisition of
Viralytics by scheme of arrangement
142%
5 Hancock Prospecting’s successful $426 million takeover
bid for Atlas Iron
73%
141% IPH’s $192 million acquisition of
6 Advanced Personnel Management’s successful $74 million Xenith IP Group
acquisition of Konekt by scheme of arrangement
130%
7 Tetra Tech’s successful $109 million takeover bid for Coffey
International
129% 59%
China Mengniu Dairy Company’s
8 Coal of Africa’s unsuccessful $126 million takeover bid for
$1.5 billion acquisition of Bellamy’s
Universal Coal
Australia
120%
9 Oz Minerals’ successful $418 million takeover bid for
Avanco Resources
100%
57%
10 Auctus’ successful $56 million takeover bid for Atherton
PSP Investment’s $724 million
Resources
acquisition of Webster
2019 2018 2017 2016 2015
29Pre-bid stakes on the decline Types of pre-bid arrangements
The proportion of transactions featuring a pre-bid stake fell As in the past few years, holdings of actual shares remained
to 46% in 2019 (down from 49% in 2018), the equal lowest the most common form of pre-bid stake, followed by pre-
result since we have been publishing this Review. bid agreements with shareholders. The move away from cash
settled equity swaps observed in 2018 has continued, with no
These transactions included both takeovers and schemes and
bidder in 2019 using this type of instrument (or at least insofar
deals ranging in value from $50 million to $2 billion. 71% of
as one can tell from public disclosures).
takeover bids involved a bidder who held (or acquired) a physical
pre-bid holding in the target, while only 24% of schemes involved It is worth noting, however, that NorthWest Healthcare
the acquirer holding a physical pre-bid stake. Interestingly, pre-bid Properties REIT, which was a key stakeholder in the
stakes also featured in two unsuccessful transactions – Charter Healthscope transaction, acquired a significant holding in
Hall / Abacus’ proposed acquisition of Australian Unity Office Healthscope via a swap. Ultimately, this allowed NorthWest
Fund by scheme, and Independence Group’s proposed acquisition to leverage into the overall transaction, enabling it to buy
of Panoramic Resources by takeover. Healthscope properties from the successful acquirer in
conjunction with the scheme.
Taken together, is the data telling us that pre-bid stakes are
becoming less important to delivering a successful outcome?
We expect not given the clear benefits of acquiring a pre-bid
stake in most transactions, but it is one we will continue to
monitor closely.
Transactions featuring pre-bid stakes Types of pre-bid arrangements (2019)
80% Equity Pre-bid Pre-bid agreement
70% derivative shareholding with shareholders
56% 59%
60%
51% 49%
50% 46% 46%
40% 0% 68% 32%
30%
20%
10% % of transactions in 2019 with a pre-bid stake
0% Note that in some transactions, the bidder had more than one type of pre-bid stake.
2014 2015 2016 2017 2018 2019
307
TRANSACTION TIMING
Takeovers still provide a faster
route...usually
While it is always possible for takeovers
to complete more quickly than a
scheme of arrangement if shareholders
accept quickly, until recent years,
there had in actual fact been no
strong advantage timing-wise between
takeovers and schemes.
Between 2018 and 2019: We consider that this difference has
However, in 2017, takeovers on arisen due to an evolution of the strategy
+ the average time to complete a scheme
average became significantly quicker to as to when a bidder might consider
increased slightly by three days;
implement than schemes. This differential using the takeover procedure. That
between takeovers and schemes has since + the average time to complete a is, this emergence of takeovers as a
remained. During the last three years, takeover reduced by 18 days; and materially shorter process has coincided
takeovers were on average around 42 + takeovers retained a material time with the emergence of schemes as
days quicker to complete than schemes. advantage, closing on average 51 days being the much-preferred method of
earlier than schemes during the year. implementing a control transaction.
Essentially, friendly Australian public
However, it should be noted that the
company control transactions are now
Average days to end of takeover offer data for takeovers is a little skewed by the
implemented by a scheme, unless there
vs scheme implementation date inclusion of a takeover of an ASX listed,
is a particular reason why a takeover
but New Zealand incorporated entity,
should be preferred. And one of those
Orion Health Group. This takeover was
reasons is that the circumstances of the
78 129
completed in 12 days (which would not
2019 company – whether that be the bidder
actually be possible under Australian
DAYS starting from a control position, or the
DAYS law). Stripping that transaction out of
composition of the register suggesting a
the data, the average days to the end of
number of significant shareholders being
the takeover offer in 2019 would be 90,
open to accept quickly – creates the
126
which would be a six-day reduction in
2018
96
DAYS
DAYS
the average time taken since 2018, and a
widening of the average time differential
possibility of the deal being concluded
in shorter time. Therefore, use of the
takeover procedure has been subject to
between a takeover and a scheme from
an almost “self-selection” of deals able
30 days in 2018 to 39 days in 2019.
to be implemented more speedily. In
115
the years where transaction structures
69
2017 Regardless, the position from the
DAYS
previous couple of years has been were more equally balanced between
DAYS maintained – takeovers still took takeovers and schemes, there was no
materially less time to implement on material difference between the two
Takeover Scheme average than schemes. from a timing perspective.
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