Equity markets are still seen as relatively strong and the IPO window – often a precursor to M&A activity – is still open, Herbert Smith Freehills partner Rebecca Maslen-Stannage told InvestorDaily.
“The IPO market is always hard to call in that the window just opens out of the blue and people are confident to get their IPOs underway,” Ms Maslen-Stannage said, “but what we saw is when those windows do open, it tends to be a precursor to M&A activity,” she said.
“I think it is really about confidence,” she said, adding that share market volatility in previous years and the federal election in 2013 created an “artificially depressing” M&A environment for much of last year.
“There has been pent up M&A demand that has not been satisfied because people have been too nervous,” Ms Maslen-Stannage said.
With equity markets in a stronger position and a new government in power, M&A activity is likely to continue, she said, adding that a number of big deals in the financial services space were finalised before the end of 2013.
“We did see a lift,” she said. “For example, Wesfarmers' sale of its insurance business to IAG and the Westpac purchase of Lloyds’ Australian operations.”
Ms Maslen-Stannage’s comments come after this week’s release of the Mergermarket Australia M&A Trend Report: 2013, which showed a staggering 1,248 per cent growth in the value of financial services sector deals.
“Because we were on relatively lesser volumes in the last couple of years, it makes for some pretty spectacular change in the value numbers,” Ms Maslen-Stannage said. “It does tend to skew it, but there is no doubt that financial services were a sector where there was some better activity and very significant deals.”
Looking to 2014, there are a number of factors that are favourable to M&A activity generally, UBS head of M&A Kelvin Barry told InvestorDaily.
“Strong equity market conditions are helpful and debt markets are supportive at the moment,” Mr Barry said. “You’ve got a number of debt markets open, both domestic and offshore, and you’ve also got historically low interest rates.
“So there is a relatively low cost of debt and an ability for Australian corporates to access debt markets that provide them with quite good tenor as well, whether that’s investment grade or sub-investment grade.”
While the spike in M&A activity late last year was significant, Mr Barry noted that it was coming off a comparatively low base and is moderate in his predictions for growth in 2014.
“Our view at the moment is probably a modest increase on last year,” he said.
