Australia Takes Centre Stage in Global Deals Spree
It’s boom time as local M&A’s soar.
It’s boom time as local M&A’s soar.
Australia’s biggest airport is resisting a takeover. An American private equity firm wants to buy one of the country’s main casino operators. And last week, Square Inc. agreed to buy Afterpay Ltd., the largest locally listed tech company, for $39 billion.
A deals frenzy is underway in Australia.
The volume of mergers and acquisitions in Australia is already at its highest annual level on record with nearly five months of the year to go. More than US$134 billion in pending and completed deals have been announced this year, according to data provider Dealogic. That already outpaces 2011, Australia’s previous busiest year on record, when just under $134 billion was announced for the entire year.
“We’re firing on all cylinders,” said Zac Fletcher, the co-head of investment banking in Australia for Goldman Sachs, which is advising Afterpay in the Square transaction. “It’s hard to really point to a time that’s been busier.”
The boom is driven in part by low interest rates, which make it cheaper to finance acquisitions and generally push investors into higher-risk assets for better returns. The low rates have helped send equity prices to record highs, making it more financially viable for companies to use stock to pay for deals. And corporations, many of which raised cash and sold off assets during the coronavirus pandemic, are now flush with money and looking to buy as the global economy recovers.
Those trends are at play in other markets, including the U.S., where deal making has also risen. But Australia has other factors turbocharging deal volumes: Large pension funds that bankers say are becoming more active in acquisitions; infrastructure assets with revenues offering stable long-term growth; and startups, particularly in the tech space, that are expanding globally and attracting attention from overseas acquirers. Meanwhile, concerns about environmental and social factors are also prompting some companies to review their business models and consider spin offs or acquisitions.
Australia is “suddenly on the radar again,” said Aidan Allen, head of Australia investment banking at Jarden. Aside from working on mergers and buyouts, Mr. Allen said bankers at Jarden, an investment and advisory firm, are spending half their time advising companies concerned by the prospect of hostile takeovers or unsolicited proposals given the heated environment for deals.
Australia also has a strong consumer economy that is underpinned by resource exports and went nearly three decades without a recession until the coronavirus pandemic hit. That combined with strong corporate governance and accounting practices at local businesses and a sophisticated legal system makes overseas companies comfortable investing in Australia, bankers said.
Many bankers expect deal volumes in Australia to remain elevated in the near future, although there are some longer-term risks. Concerns about global inflation could prompt central banks to raise interest rates sooner than expected and the highly contagious Delta strain of the coronavirus could derail the global economic recovery and reduce corporate appetite for large transactions.
“Things can and do change rapidly,” said Julian Longstaff, managing director of global capital markets at Commonwealth Bank of Australia, the nation’s largest bank, which arranges financing for many deals.
“If you have a big deal at valuations that work, it’s best to bring it to the market and get it done while demand is strong,” he said.
Previous deal-making booms haven’t been sustained. Cross-border investment from China drove a wave of deals in past years, but Australia’s tightening of foreign investment rules and a diplomatic spat has cooled Chinese interest recently. Even some U.S. business leaders have worried the rules make it difficult for American companies to invest, though bankers say the current boom is driven by a combination of Australian, U.S. and European acquirers.
What would be Australia’s two biggest-ever deals were unveiled in just in the past few weeks. Square’s $29 billion all-stock offer for Afterpay would be Australia’s largest on record and given the strategic rationale analysts expect it to be completed. That deal came weeks after a consortium of infrastructure investors, including Australian pension fund managers, made a nearly $17 billion dollar bid for Sydney Airport. The airport rejected the initial offer saying it was too low, though the consortium could increase its bid.
A survey released last month from accounting giant Deloitte, which has been polling Australian executives annually in recent years, found that 95% expected the number of deals their companies would pursue to increase or remain stable over the next 12 months.
“We’ve never seen that level of enthusiasm,” said Ian Turner, national head of mergers and acquisitions for Deloitte Australia.
Other big deals this year include the roughly $8 billion bid from private-equity firm Blackstone Group Inc. for Australian casino operator Crown Resorts Ltd. A Canadian pension fund, the Ontario Teachers’ Pension Plan Board, and private-equity firm KKR & Co. want to buy Spark Infrastructure Group, which owns electricity assets, for about $5.1 billion. And Oil Search Ltd., the biggest oil producer in Papua New Guinea, recently said it intends to recommend an all-stock takeover from Santos Ltd. to create an energy company worth $21.7 billion.
“It’s an incredible moment in time,” said Joe Fayyad, country head and co-head of investment banking for Bank of America in Australia. “Australia is becoming more recogn=ised for the opportunities it can provide.”
This stylish family home combines a classic palette and finishes with a flexible floorplan
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
New research suggests spending 40 percent of household income on loan repayments is the new normal
Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.
Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.
“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.
CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.
Sydney
Sydney’s median house price is $1,414,229 and the median unit price is $839,344.
Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.
Melbourne
Melbourne’s median house price is $935,049 and the median apartment price is $612,906.
Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.
Brisbane
Brisbane’s median house price is $909,988 and the median unit price is $587,793.
Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.
Adelaide
Adelaide’s median house price is $785,971 and the median apartment price is $504,799.
Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.
Perth
Perth’s median house price is $735,276 and the median unit price is $495,360.
Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.
Hobart
Hobart’s median house price is $692,951 and the median apartment price is $522,258.
Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.
Darwin
Darwin’s median house price is $573,498 and the median unit price is $367,716.
Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.
Canberra
Canberra’s median house price is $964,136 and the median apartment price is $585,057.
Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
This stylish family home combines a classic palette and finishes with a flexible floorplan