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Mergers and acquisitions pipeline suggests late 2016 pick-up

Joyce Moullakis
Joyce MoullakisSenior Reporter

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There are tentative signs that mergers and acquisitions in Australia will pick up in the fourth quarter, following a dearth of deals so far this year for bankers and lawyers.

A report by technology and dataroom company Intralinks that tracks early-stage mergers and acquisitions (M&A) suggests deal announcements will rise in the last quarter of 2016. The more positive outlook comes despite lingering concerns by bidders around the application of foreign investment rules after binding offers for NSW's electricity network Ausgrid were blocked on Thursday on national security grounds.

Intralinks's Deal Flow Predictor showed activity growing by 6.9 per cent, the first positive reading since at least the fourth quarter of 2014. The findings are backed up by anecdotal evidence from bankers and lawyers.

Intralinks survey suggests a rebound in M&A. Ron Hovsepian is the global CEO of Intralinks. Louise Kennerley

The report forecasts the volume of future M&A announcements by tracking transactions across the world that are in the preparation stage or have reached the due diligence stage. These early-stage deals are, on average, six months away from public announcement.

The Australian results were in contrast to the broader Asia Pacific market, which is expected to see a decline in the last quarter of 2016 compared to last year. That is due to reduced levels of early-stage M&A activity in South-East Asia and South Korea.

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Along with North America, Asia Pacific is the only region that showed flat or negative growth, while Europe, the Middle East and Africa, and Latin America posted results that suggest growth in transaction volumes.

Intralinks vice-president of strategy Philip Whitchelo said the Australian results were most promising for M&A activity in the broader industrial and retail sectors. He added that the federal election did not weigh on dealmaking.

"Our data appears to indicate that uncertainty over the outcome did not appear to weigh on early-stage M&A," he said.

Clayton Utz partner Karen Evans-Cullen also anticipates an improvement in M&A volumes over the next six months.

"We have quite a few deals that are in the planning stages," she said. "We have quite a strong pipeline."

Her optimism was buoyed by the fact private equity firms were actively looking to deploy capital and that US and European inbound activity typically picked up in September.

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She said some foreign bidders were more reticent on pursing Australian transactions but much depended on the sector and deal specifics. Agribusiness remained in focus.

"Companies are not quite sure where the government is going to go in that space."

Announced mergers and acquisitions in Australia amount to $US36.3 billion so far this year, according to Dealogic data. That is the lowest annual volume as at August 10 since 2005.

Separately, outbound transactions by Australian companies total $US5.9 billion this year, the lowest volume in three years.

The largest domestic acquisition in 2016 is the now finalised takeover of ports and transport operator Asciano led by Qube and Brookfield.

In the deal pipeline, are trade sales of companies including retailer The Good Guys, vitamin group Nature's Care and large state privatisations such as the Port of Melbourne.

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The NSW government's partial privitisation of Ausgrid, hit a major roadblock when Treasurer Scott Morrison blocked bids by China's State Grid and Hong Kong-listed Cheung Kong Infrastructure.

The parties have until August 18 to respond to concerns canvassed.

Mr Whitchelo noted Australian politicians and regulators had to tread carefully on foreign investment rules as inbound activity typically accounted for a large share of the nation's M&A volumes.

"If you look at the data on announced deals over the past six years to 2015 for Australian targets inbound M&A is on average 34 per cent of all the deals by number and 47 per cent by value. If you look at 2016 year-to-date, those figures are 37 per cent by number and only 31 per cent by value."​

Joyce Moullakis wrote on banking and finance, specialising in Investment Banking, Private Equity, Financial Services. Connect with Joyce on Twitter. Email Joyce at jmoullakis@afr.com.au

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