Australia’s deal boom set to escalate thanks to cheap money and pandemic trust – bankers

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The Afterpay app can be seen on a cell phone screen in a photo illustration taken on August 2, 2021. REUTERS / Loren Elliott / Illustration

HONG KONG, Aug 2 (Reuters) – Australia’s record merger and acquisition (M&A) boom can only intensify in the near term, as ultra-low interest rates and confidence that the economy will rebound after the COVID-19 pandemic are expected to drive transaction activity, bankers said.

The market received a boost on Monday after U.S. payments firm Square Inc (SQ.N) announced it would buy now, later pay pioneer Afterpay Ltd (APT.AX) for $ 29 billion in the part of the largest takeover of an Australian company. Read more

On the same day, Oil Search Ltd (OSH.AX) accepted a $ 6.2 billion takeover bid from Santos Ltd (STO.AX). The deals brought M&A activity in Australia to its highest annual level, according to Refinitiv figures. Read more

The announcements of the deal came even as Australia struggles to stop the spread of the highly contagious Delta variant of the novel coronavirus, with Queensland state extending social lockdown measures in Brisbane on Monday, while the soldiers began patrolling Sydney to enforce stay-at-home rules. Read more

Although Australia’s vaccination campaign has lagged behind many other developed economies, it has been more successful in keeping the number of infections relatively low, with just under 34,400 cases.

“It’s not just Australia, but overall there is a lot of confidence in mergers and acquisitions right now. Locally, until recently Australia had handled COVID-19 very well. Sydney is now locked out and investors believe it will likely be short-lived, “said Daniel Teper, partner at KPMG M&A.

According to data from Refintiv, merger and acquisition deals worth $ 174 billion were announced in Australia in 2021, an all-time high and about six times the value of the same period last year.

Australia’s total accounts for about 22% of the value of M&A deals in Asia excluding Japan this year, its highest share in the region since 2011, according to the data.

“Australian mergers and acquisitions are driven by (…) low interest rates leading to cheap debt, record stock markets, market stimulus measures, large cash reserves on balance sheets and in pension fund, and a focus on what will follow beyond the pandemic, ”said Duncan Hogg. , M&A manager of EY Oceania.

Monday’s trades helped lift the Australian benchmark stock index, the S & P / ASX200 (.AXJO), to close at 1.34%.

Australia’s 2021 deals spanned sectors as diverse as tech, gaming and aviation. Square’s takeover of fintech company Afterpay comes two weeks after Sydney Airport Holdings Pty Ltd (SYD.AX) turned down a $ 16.6 billion offer from a consortium.

“Conditions are going to be favorable for a while,” said Rob Silverwood, PwC’s chief trading officer. “There is an abundance of capital in the corporate and private equity sector, we believe we will see these high levels of activity over the next six to 12 months.”

Due to increase in transactions, Australian investment banks are getting their best pay in a decade, with merger and acquisition fees to date of $ 364.3 million, up almost 50% compared to the previous year.

Australia has been a very good contributor to the region’s M&A costs, said a senior banker at a Wall Street lender who oversees Asia, who was not authorized to speak to the media and therefore has refused to be identified.

Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N), which Refinitiv ranks first and second in the Australian rankings for announced mergers and acquisitions, advise Afterpay and Square, respectively.

Reporting by Scott Murdoch and Kane Wu; Editing by Sumeet Chatterjee and Christopher Cushing

Our standards: Thomson Reuters Trust Principles.


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