Herbert Smith Freehills has released its annual Public M&A Report, which analyses all of the public M&A transactions announced during the year ended 30 June 2024. The Report is the most comprehensive analysis of Australian public acquisitions and tactics and is in its 16th consecutive year.

Key overall statistics from the report are:

  • 70 announced deals, with a combined value of $49.2 billion.
  • 14 transactions above $1 billion, against the 5-year average of 8.
  • 91% success rate on announced deals, against the 5-year average of 75%.
  • 71% of all and 93% of >$1 billion deals were proposed as schemes of arrangement.
  • Energy and resources represented the greatest share of deals by number, though a lower share than previous years. The materials and information technology sectors were also strongly represented this year.

The following are our five key observations from the report for private capital clients:

1. Deal activity and trends

There were 14 deals announced which involved a private capital bidder, exactly in line with the five-year average of 20% of total deals, with a combined value of $6.7 billion. However, the average value of deals was modest compared to previous years, with an average of $482 million in FY24 relative to $1.6 billion in FY23 and the five-year average of $1.1 billion.

In FY24, there were 3 mega deals involving private capital (>$1 billion valuation), including TPG Capital’s acquisition of InvoCare, the Paine Schwartz-led consortium buyout of Costa Group and Madison Dearborn Partner’s acquisition of APM Human Services.

Schemes remained the dominant form of deal structure for larger transactions, comprising 9 of the 14 deals in the sector. There were 5 takeovers announced, 4 of which were unsolicited/hostile.

As at 30 June 2024, there were 6 deals involving private capital bidders had successfully completed, with the 8 remaining transactions ongoing.

2. Creative break-up bids

In FY24 bidders became increasingly selective towards the target assets being acquired and adopted a variety of structures to suit their selections. The proposal by KKR to acquire Perpetual’s wealth management and corporate trust businesses, and Brookfield / EIG’s proposed acquisition of Origin, show that deal structures can be flexibly applied to target specified businesses lines or assets. These structures may unlock a deal, and value to shareholders, that is otherwise unavailable because a whole of company transaction is not practical or desirable.

We expect more of these bespoke structures to be adopted by private capital buyers eager to partner with listed sellers looking to divest parts of their business. However, a tension will have to be worked out on a case-by-case basis in respect of the allocation of execution risk of separation for the relevant businesses or assets and the associated costs in doing so.

3. Rise in minority buyouts – the time is seemingly now

There was a dramatic increase in long-time major shareholders buying out minorities. Our data showed 14 such buy-outs in FY24, relative to 2 in FY23 and 3 in FY22. 6 of the minority buyouts in FY24 involved private capital bidders.

What drove this increase?

  1. Second opportunity to take private: In some cases it was private equity sponsors revisiting a take-private, such as the Paine Schwarz led buyout of Costa.
  2. Unfinished business: In other cases it was finishing off unfinished business from an earlier attempt to acquire the target.
  3. Time to exercise the option: In other cases again, the time was right to exercise the option, as was the case in Kin Group’s takeover of Pact Group.

4. Pre-bid stakes and other forms of shareholder support

Of the 14 deals announced with a private capital bidder, 12 deals involved some form of pre-bid stake or shareholder support on announcement. There were 10 deals where the bidder had a direct shareholding in the target and 2 deals where a major shareholder entered into a voting agreement or provided a voting intention statement that it would vote in favour or accept the bidder’s proposal.

In many cases, the acquisition of a pre-bid stake or other form of shareholder support, resulted in a successful outcome – of the 12 deals with shareholder support, 5 have successfully completed. The remaining deals were ongoing as of 30 June.

5. Recent developments in stub equity

A NSW Supreme Court decision provides a potential new avenue to manage small shareholders rolling into the post-acquisition vehicle has emerged. In that scheme, a large number of shareholders were excluded from a stub equity offer without being class-creating (effectively any shareholder holding less than $345,000 worth of target shares). However, it is not clear where the line has been drawn on this issue, and the use of a similar structure moving forward will need to carefully consider the eligibility criteria based on the specific circumstances of the deal, including the composition of the target’s register.