And although the number of M&A capital raisings was the lowest in 10 years, the amount of capital raised was the highest since 2011, with investors willing to put more capital into a smaller number of deals.
The $32 billion takeover of Westfield by European mall giant Unibail-Rodamco was the largest completed M&A deal last year, while the divestments of Coles Group from Wesfarmers and Petrohawk Energy Corp from BHP Billiton were the second and third largest respectively, with each deal worth more than $12 billion.
Macquarie Group’s head of capital markets, Hugh Falcon, said he expected capital markets activity this year would be dominated by secondary raisings.
“Capital raisings are generally driven by mergers and acquisitions and balance-sheet considerations. I do think we’re in a heightened M&A environment where there is more potential to take advantage of strong share prices,” he said. “I think with boards, there’s a lot more enthusiasm to pursue acquisitions and opportunities.”
Mr Falcon agreed with Mr Dive that deeper discounts might be required, but he said this was because of sharemarket volatility.
“I think discounts are being driven by market sentiment and circumstances,” he said. “Will we see some of the same sorts of risk-taking that we’ve seen from some of the banks? Probably not. We expect to see more risk aversion in the market from the underwriters. Will that result in discounts? Probably.”
Late last month Australian Securities and Investments Commission boss Cathie Armour said banks are “talking their own book” if they were blaming steeper discounts on regulatory action. Her comments followed a probe on how stock is allocated to investors when companies raise capital, which uncovered conflicts of interest and raised questions about whether underwriters were giving too much away to institutional investors that buy their deals.
Mr Falcon was optimistic about the prospects for some companies to launch initial public offerings.
“Looking into 2019-20, the quality of potential IPOs looks pretty good to us; [there’s] some pretty interesting businesses. Inevitably, the quality of the offering will be a driver of sentiment and interest,” he said.
Investors could benefit
While companies and investment banks may be grappling with the tough listing environment, the change in the market could benefit the investor.
“There has been a clear change in the ability of companies to raise capital via either an IPO or capital raising in the current market,” said Perennial Value Management head of smaller companies and microcaps Andrew Smith.
“Given new capital for these deals is now scarce, the bargaining power of the marginal investor has improved materially. We believe this has been to the benefit of long-term investors.”
Mr Smith said the companies that were able to list in this environment tended to be higher quality companies.
“This sort of tough market self-selects only those quality companies which have a logical and genuine need for capital to execute on real growth options. In these scenarios the vendors are typically not selling any equity, which is another great signal. It really is a case of a sharp drop in the quantity of deals, with only high-quality deals being successful.”
The continued market volatility is likely to mean those who postponed their floats during 2018 may have to wait even longer. A number of large floats were shelved or delayed last year, including Colonial First State Global Asset Management and Vodafone New Zealand. In most cases, market volatility was given as the reason for pulling the floats.
Other companies mooted to be eyeing the markets when conditions improve include Tyro, SocietyOne and Latitude Financial .
from Viral up Blog http://bit.ly/2RBMiXb
0 Comments