Around this time last year, in the context of the widely publicised peak of the mining investment downturn, we reported that the Hunter M&A market was "not that bad" and that, in our view, transaction activity and capital raising in the Hunter had remained steady. In other words, aspects of the Hunter market were apparently bucking the national trend of low volume and value deal making during FY13. In this article, Andrew Windybank, Principal of our corporate and commercial team, reflects on corporate trends in the past financial year.
While FY2014 has seen positive reporting for transactions at a national level, our experience suggests the Hunter’s M&A and investment / capital raising activity is now feeling the delayed effects of the downturn in mining investment. Business confidence in mining and mining related industry in the Hunter is apparently lower than this time last year and this is impacting on decisions relating to growth.
However, even in this more subdued climate, there are positive trends. This past financial year the commercial practice was characterised by:
- market consolidation – roll-up and merger transactions in market segments (particularly manufacturing and services businesses exposed to mining);
- growth of bespoke investment funds – establishment of specific funds for targeted investment (property development; aged care; and intellectual property commercialisation and acquisition);
- counter cyclical investment – acquisition and investment activity in mining and engineering services companies;
- restructuring – a significant increase in demand for new or revised shareholder and joint venture arrangements; revision or changes to partnering documents; distressed sale or restructure arrangements; and unit trust restructuring.
Our specific experience this past financial year clearly reflects these general trends.
Some of the transactions on which our team has acted include:
- Enviropacific Roll Up – advising Enviropacific Services Pty Limited in relation to its acquisition and roll up of Spill Tech Pty Ltd, Holaust Marine Pty Ltd and Dantec Australasia Pty Limited. Spill Tech and Holaust supply equipment for the clean-up of oil spills and servicing of dredging and mining equipment and Dantec is a petrochemical engineering business.
- PE Funds –establishment of a new fund (private equity) for targeted small capital investments and advice for other boutique and private funds raising capital for future Hunter based investment.
- Acquisition of Addcar – advising UGM in relation to its acquisition of Addcar, a specialist provider of highwall mining technology and services based in Kentucky USA. On one view this is a bold acquisition by UGM, particularly because it represents an investment against the mining services market trend. The deal sees this mining services business shift focus to products and intellectual property.
- Restructuring – advising clients across a range of industries in relation to the introduction or revision of shareholder and joint venture arrangements. Our clients are recognising the need to ensure that their relationship documents are consistent with their current and anticipated business needs. In some cases this has also involved restructuring existing business structures to ensure appropriate arrangements are in place to manage the assets and facilitate future dealings with them.
- Distressed Sales – advising directors and insolvency practitioners in connection with various restructure, distressed transactions and disposal (in administration) transactions. We’ve also acted for a number of buyers who have taken up the opportunity to acquire distressed assets and businesses at good prices.
Cautious due diligence
We are seeing a noticeable increase in clients performing (or being subject to) extensive due diligence, often without the parties proceeding to a transaction. Consistent with FY13 trends, a large number of the potential investors have been international buyers looking for exposure to local Hunter businesses.
Earlier this year we acted for a foreign investor in relation to its proposed investment in an ASX listed entity. Similar foreign investors have undertaken due diligence on Hunter businesses and we are seeing significant pre-transaction activity (legal and financial due diligence and negotiation) from in-bound, private and investment fund sources, although in many instances these activities are not resulting in consummated transactions.
The Road Ahead
The next 12 months look no easier than the past 12 months. However, the urban renewal and infrastructure spending projects which have been announced by the NSW State Government should offer a range of direct and flow-on opportunities for Hunter businesses during the coming year and beyond. We are proud to advise a number of high quality companies in the region and we see evidence Hunter Businesses will continue to grow and invest, whether against market trend or otherwise, in the short to medium term.
This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.