In 2014, we made various observations in relation to the Hunter M&A market, including trends that we expected to see continue during 2015. In this article, Andrew Windybank, Principal of our corporate and commercial group, reflects on these observations and highlight further trends that are likely to continue in 2016.
In our '2014 Market Wrap' we highlighted a series of trends that we had encountered in the Hunter during FY14, including:
- delayed effects of the mining investment downturn;
- clients performing, or being subject to, extensive and cautious due diligence; and
- increased international (inbound) interest in Hunter businesses and land.
While FY14 was overshadowed by a 'subdued climate', we reported the emergence of a number of positive trends. In FY15, some of these positive trends have developed into a series of significant transactions and what appear to be longer term trends for this region. This is positive news for Hunter businesses.
In particular, our experience in the Hunter in FY15 has been highlighted by:
- growth in international investment - while FY14 was characterised by a series of international investors conducting 'cautious' due diligence on local businesses (but not necessarily proceeding to a transaction), in FY15 we saw ongoing international interest materialise into several significant transactions;
- increased M&A activity - we have observed an increase in regional and national merger activity, particularly in the small to medium ($5m - $50m) sector; and
- continued market consolidation and restructuring by larger business groups - these FY14 trends have continued in FY15.
Our commercial team has acted on a number of significant transactions including:
- Sale of Glenrock Station - Acting for owners of Glenrock Station on the sale of a substantial 30,500 hectare cattle station in the NSW Hunter Valley to AAAW Pty Limited (Australian arm of a Chinese retailer) with a transaction value of approximately $45m.
- PE interest - We have worked on a number of private equity transactions, including providing advice to the shareholders of Enviropacific on its sell down of 44% to Adexum in October 2014.
- Further 'roll up' activity - We have continued to advise clients on various acquisitions and 'rolling up' transactions involving smaller businesses in related industries.
- Restructuring - We have continued to act on a range of corporate restructures for clients across various industries (including construction, manufacturing and tourism sectors). We estimate we have had a role in restructure transactions with a combined enterprise value of more than $1bn in the past 18 months. We see this trend continuing.
- Start-ups - We have advised a number of start-up companies (particularly in the emerging smart engineering and tech markets) setting up key business relationships and preparing their business for capital raising (including introducing new investors) or sale.
Looking forward to FY16
With the end of the financial year out of the way and the Christmas holiday period just over the horizon, October is often a pivotal month for business. As advisors to leadership teams, we can typically gauge the year ahead by the dialogue we see (and hear) in October.
This year, in Newcastle and the Hunter, our 'October discussions' are neither optimistic nor pessimistic. If anything, the local 'mid cap' M&A and capital raising market appears flat and the focus of our discussions is for legal assistance to prepare for the future. For example, we are being called on to document restructure transactions - either for debt or equity changes. The number of these types of assignments has significantly increased in the past 2 years and we expect this trend will continue in FY16.
At the same time, we anticipate that in-bound business opportunities will continue to increase. In the past 12 months, we have advised on large real estate transactions, manufacturing joint venture arrangements and IP licensing and co-operation arrangements with Chinese counterparties. Our clients are increasingly approaching us for advice regarding doing business with China and the USA. We have close relationships with Chinese and American advisors that have greatly assisted our clients during the past financial year.
While interest in dealing with China and the US continues to rise, so do the opportunities available to Hunter-based businesses for support in dealing with foreign counterparties. For example, we have observed a rise in networking and information initiatives - such as HunterNet's focus on doing business in China and the University of Newcastle's 'China Week' business forum. These types of events are extremely useful for clients considering expansion into China, particularly in the manufacturing and services sectors.
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.