What trends have featured in recent Australian private acquisitions?
We recently launched our sixth annual DealTrends report which analyses private target mergers and acquisitions in the Australian market.
Strong cross-border deal flows
Cross-border deals in FY2016 made up 80% of the surveyed ‘mega deals’ (A$500m+) and more than 50% of the total deals surveyed, demonstrating that international investors see Australia as a favourable place to do business.
In particular, in deals featuring a non-Australian jurisdiction there was an increase to 22% for cross-border deals involving China. There was also particularly high deal activity in deals involving the US and the UK.
Given the high activity in cross-border deals involving these jurisdictions, coupled with recent changes to the Australian Foreign Investment Review Board approval process, foreign investment approvals have become an increasingly common regulatory condition precedent.
However, compared to previous years the reliance on conditions precedent generally is declining, which indicates that buy-side risk appetite is firming up. This year’s report shows that (other than for regulatory approvals) there was a decrease in prevalence of all key conditions precedent, including the use of material adverse change conditions.
Locked box mechanisms gain traction in Australia
‘Fixed price’ deals have traditionally been slow to gain traction in Australian private M&A compared to other overseas markets such as Europe or the US, however this year we saw an increase in the use of ‘locked box’ mechanisms to a total of 21% of all deals surveyed. This suggests that domestic deal parties and advisors are becoming more comfortable with this structure.
Steady increase in warranty and indemnity insurance
For the sixth year in a row the steady increase in use of warranty and indemnity insurance continued, rising to 40% of deals surveyed from just 15% in FY2011. In addition to private equity exits, it has now become a common feature in corporate transactions, with 33% of non-private equity deals using warranty and indemnity insurance. Warranty and indemnity insurance is now also a common feature of cross-border deals (at 37% of cross-border deals).
Increased awareness of anti-bribery and corruption risks
There has been a gradual but consistent increase year on year in deal terms specifically addressing anti-bribery and corruption risk. While this is not surprising for cross-border deals, it is noteworthy that 14% of domestic deals in FY2016 featured specific anti-bribery provisions.