Australian Firms to Tap Equity Market for M&A Funds, UBS Says
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Angus Whitley
Dec. 9 (Bloomberg) -- Australian companies seeking cash for takeovers will account for a bigger share of local equity fundraising next year as firms emerging from the financial crisis step up acquisitions, UBS AG said.
Initial public offerings will also pick up after slumping to a 16-year low in 2009, said Simon Cox, head of equity capital markets syndication at UBS, Australia’s biggest arranger of share sales since 2006. Myer Holdings Ltd. went public last month in the country’s largest IPO since April 2007.
National Australia Bank Ltd. and Lihir Gold Ltd. were among local companies that raised A$86 billion ($78 billion) selling shares in the 10 months through October to strengthen capital as economies weakened, stock-exchange data show. Australia’s economy is rebounding faster than the U.S. and Europe and the currency has rallied this year, making companies more confident about expansion.
“This year was largely about raising capital to repair balance sheets and survive the financial crisis,” Cox said in an interview in Sydney. “In 2010, we’ll see a more resurgent IPO market and the return of cross-border mergers and acquisitions.”
The value of share sales may fall to about A$50 billion next year, a return to “normal” levels, according to Cox. IPOs will account for a larger share of the total than the 3 percent they made up so far in 2009, he said.
Australia’s Queensland state said yesterday it plans to list its coal and rail freight network next year, a business the local government has valued at A$7 billion.
‘Recapitalization Complete’
Mergers and acquisitions by Australia-based companies are poised to fall to the lowest since 1999 this year, with $25.4 billion of transactions announced, according to Bloomberg data.
Australian companies raised A$83.5 billion in secondary share sales and A$2.65 billion in IPOs in the first 10 months of 2009, the stock exchange said. Forty-five companies went public in the 12 months ended June 30, the fewest since 1993.
“The recapitalization process of corporate Australia is essentially complete,” said David Gray, head of equity capital and derivative markets for JPMorgan Chase & Co.’s Australian business. “Issuance in 2010 is likely to be driven by M&A financing, funding-project growth and IPOs.”
It’s easier to fund overseas acquisitions with cash than equity, so Australian businesses are more likely to tap share markets for financing, said Cox at UBS. The 31 percent rally in the local currency against the U.S. dollar this year has helped make foreign purchases cheaper.
Confident Boards
Sims Metal Management Ltd., the world’s biggest recycler of scrap metal, said Nov. 20 it planned to sell A$475 million of shares to help fund takeovers and repay debt. GrainCorp Ltd., the nation’s biggest grain handler, in October agreed to buy United Malt Holdings Ltd. for $655 million, partly funded by a A$589 million share sale.
“Corporates now have the capacity to pay for takeovers,” said Tom Story, a partner at law firm Allens Arthur Robinson in Sydney who specializes in mergers and acquisitions and equity- capital fundraising. “Boards are now more confident and actively looking for opportunities.”
The country’s benchmark stock index, the S&P/ASX 200, ended six straight quarters of declines in the three months to June 30 and has surged 48 percent from a March 6 low. The equities recovery presents an opportunity for companies seeking to go public.
An IPO of outdoor equipment retailer Kathmandu Holdings Ltd. by co-owners Goldman Sachs JBWere Pty and Quadrant Private Equity last month valued the company at A$340 million. German builder Bilfinger Berger AG plans to list its Australian unit in an IPO that analysts say may value it at about $890 million.
Valuation Pressure
Ascendia Retail, owned by buyout firm Archer Capital, may raise A$800 million as early as February, the Australian Financial Review said Dec. 7. Australian pallet-hire company Loscam Ltd. is also planning an IPO, the Review said.
“There’s a mix of businesses coming through,” said Cox at UBS. “It’s not only private equity-owned retailers. The total will be way up on 2009.”
Still, valuations for private-equity led IPOs may come under pressure, Cox said. Shares of Myer, Australia’s largest department-store chain, fell on the first day of trading in Sydney after its A$2.1 billion offering and remain below the IPO price.
UBS is the top-ranked underwriter of equity offerings in Australia and New Zealand this year with 24 percent market share, Bloomberg data show. Macquarie Group Ltd. is second with 15 percent, followed by Goldman Sachs JBWere at 13 percent.
To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net
Last Updated: December 8, 2009 20:12 EST
