TAKEOVERS + SCHEMES REVIEW 2020 GTLAW.COM.AU 1 THE GILBERT + TOBIN 2020 TAKEOVERS + SCHEMES REVIEW After a seven-year high in 2018, public M&A involving ASX-listed companies softened in 2019. Some key themes from 2019 were: + 41 transactions valued over $50 million were announced in 2019, down from 49 transactions in 2018. The aggregate transaction value decreased significantly from $48.7 billion in 2018 to approximately $24 billion in 2019. + The healthcare sector made the greatest contribution to announced public M&A by value, followed closely by retail & consumer services and industrial products. + Cashed up private equity firms sought out public M&A targets in a significant way, willing to deploy approximately $10.3 billion on a range of targets in 2019, equivalent to 44% of the aggregate transaction value. + While the number of transactions involving a foreign bidder was broadly the same as recent years, the aggregate deal value attributable to foreign bids fell by more than half from $42 billion in 2018 to $19 billion in 2019. Bidders from North America were the most active, while interest from China was more subdued. + 89% of the total number of announced M&A transactions over $50 million were successful in 2019, despite the slight drop in average final premium paid by bidders. + The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry ignited increased scrutiny and action by corporate regulators. The number of ASIC enforcement actions increased by 20% and the Takeovers Panel heard 38 applications, the second highest in its 20-year history. This Review, which was released on 12 March 2020, examines 2019’s public M&A transactions valued over $50 million and provides our perspective on the trends for Australian public M&A in 2019. We trust you will find this Review to be an interesting read and a useful resource. 2 CONTENTS KEY HIGHLIGHTS 4 1 MARKET ACTIVITY 6 2 SECTOR ANALYSIS 10 3 TRANSACTION STRUCTURES 14 4 FOREIGN BIDDERS 16 5 CONSIDERATION TYPES 24 6 SUCCESS FACTORS 27 7 TRANSACTION TIMING 31 8 IMPLEMENTATION AGREEMENTS 34 AND BID CONDITIONS 9 THE REGULATORS 39 2019 PUBLIC M&A TRANSACTIONS 47 OUR APPROACH 49 ABOUT GILBERT + TOBIN 50 RECENT GILBERT + TOBIN TRANSACTIONS 51 ABOUT THE AUTHORS 56 AWARDS AND RECOGNITION 62 GILBERT+ TOBIN M&A PARTNERS 63 3 KEY HIGHLIGHTS PRIVATE EQUITY AND RETAIL & CONSUMER TRANSACTION ACTIVITY SUPERANNUATION SERVICES AND HEALTHCARE SOFTENS FUNDS ACTIVE LED THE WAY After a seven-year high for public M&A While overall activity may have been down, Healthcare and retail & consumer services transaction activity in 2018, activity private equity continued to be a significant emerged as the top performing sectors by softened in 2019 with a decrease in both source of activity in 2019, being the transaction value, contributing 27% and 21% the value and number of transactions. 41 proponents in public transactions with a of total transaction value respectively. Retail transactions valued over $50 million were value of approximately $10.3 billion last & consumer services represented 20% of announced, down from 49 transactions in year. This represented 44% of aggregate the total number of transactions, while the 2018, representing a 16.3% reduction. transaction value (up from 28% in 2018) healthcare sector contributed 15% of the and 24% of transaction volume (consistent transaction volume. The aggregate transaction value decreased with 2018). A range of PE houses were significantly in 2019, with approximately The energy and resources sector represented active in public deals in 2019 including $24 billion in transactions announced, 17% by number and 7% by value of public M&A BGH Capital, TPG, KKR, Brookfield, PEP, compared to $48.7 billion in 2018. This transactions in 2019, demonstrating a reduction Quadrant and Adamantem to name a few. is the lowest aggregate transaction value in the contribution from this sector from 2018. since 2013 and a fall of more than 50% from 2018. This was primarily due to a fall in the number large transactions, with only 11 transactions valued at over $500 million announced in 2019, compared to 21 in 2018. Even if one excludes the ~$13 billion unsuccessful offer for APA Group in 2018, it is clear that there was a significantly lower aggregate value of public M&A transactions in 2019. It is difficult to pinpoint the causes for the fall. Perhaps, the federal election in May INTERESTINGLY, 2019 ALSO SAW 2019 had some part in it being a softer year. Other potential reasons include greater SIGNIFICANT INVOLVEMENT OF instability from geopolitical tensions and, on the local front, greater regulatory scrutiny. AUSTRALIAN SUPERANNUATION FUNDS IN PUBLIC M&A FOR THE FIRST TIME In particular, AustralianSuper was a key part of the BGH Capital consortium’s proposals for Healthscope and Navitas and used its significant shareholding to drive the Navitas transaction. QIC Private Capital also made a successful public M&A bid for Pacific Energy. This evidences superannuation funds’ shift from being purely passive investors to active drivers of activity. 4 SUCCESS RATES UP & VALUE OF FOREIGN SCHEMES INCREASINGLY REGULATORS INVESTMENT FALLS THE TRANSACTION UNLEASHED STRUCTURE OF CHOICE Foreign investment activity in 2019 in Friendly / agreed acquisitions by scheme The Financial Services Royal terms of deal volume was broadly the of arrangement are increasingly the Commission seemed to galvanise same as recent years, with 56% of all preferred approach for bidders. public opinion and scrutiny of large public deals over $50 million involving corporates further in 2019. 89% of the total number of announced foreign acquirers compared to 59% in M&A transactions over $50 million Regulators, including ASIC and 2018 and 63% in 2017. were successful in 2019, representing APRA, which were criticised for However, more strikingly, the aggregate a significant increase over 2017 where not taking stronger action sooner deal value attributable to foreign bids only 70% of transactions reached a against misconduct, have stepped up fell by more than half from $42 billion successful outcome and an increase over regulatory action. in 2018 to $19 billion in 2019. 2018 where 80% were successful. ASIC’s controversial ‘why not Despite lower volumes and values, The increased use of schemes of litigate?’ approach has seen the foreign bidders enjoyed higher success arrangement, particularly in high value regulator increase its regulatory rates in 2019 with 95% of foreign bids transactions, is a continuing trend which presence with a 20% increase in the succeeding compared to 76% in 2018. is strengthening. 83% of transactions number of enforcement actions over over $50 million proceeded by way FY 2018-2019. It is also progressing Notably, European bidders who of scheme in 2019. This represents an criminal prosecutions in relation to accounted for 12% of bidders by 18% increase over 2018, where 65% of three different M&A transactions, transaction number in 2018 only transactions over $50 million proceeded including most recently against Ms represented 7% of bidders in 2019. by way of scheme. Jan Cameron for allegedly failing to However, interest from North disclose a substantial shareholding American acquirers increased in Transactions which proceeded by way of interest in Bellamy’s Australia, which 2019, representing 29% of bidders by scheme enjoyed greater success rates in was ultimately taken over by China transaction number, up from 18% in 2019 with 90% of schemes succeeding Mengniu Dairy Company last year. 2018. Asian acquirers represented 17% in 2019, compared to 72% in 2018. of total bidders. The ACCC continues to be activist in its approach to investigating mergers. However, the ACCC also extended its losing streak in merger decisions before THE AGGREGATE DEAL VALUE the courts/tribunals to seven with the ATTRIBUTED TO FOREIGN BIDS Federal Court recently allowing the Vodafone/TPG merger to proceed. FELL BY MORE THAN 50% TO The Takeovers Panel was also very busy in 2019, hearing 38 applications. $19 BILLION This was the second highest ever, as the Panel comes to celebrate its 20th birthday in March 2020. 5 1 MARKET ACTIVITY Public M&A activity down after bumper 2018 However, and significantly, the number of transactions worth over $500 million almost halved from 21 to 11 (albeit, it is worth noting In last year’s Review, we reported that Australian public M&A that 2018 was an eight-year high in this regard). The decrease activity was the highest it had been for the past seven years. in larger transactions overshadowed the slight increase in deals At the time, it was noted that the federal election and expected between $50 and $500 million from 28 in 2018 to 30 in 2019. tightening of regulatory oversight might dampen transaction When measured by aggregate transaction value, the fall in public activity in 2019. M&A activity in 2019 appears even more pronounced, decreasing It seems that cautionary note became reality in 2019. Although by more than 50% from 2018 levels to approximately $24 billion. transaction activity was solid, transaction values failed to match This was a direct result of the marked decrease in higher-value the highs of 2018. deals. Indeed, the number of $1 billion+ deals almost halved from 10 in 2018 to six in 2019, with no deals over $5 billion (unlike in In total, there were 41 transactions valued at $50 million or more recent years). Interestingly, while large deals were done, the ASX in 2019, representing a 16.3% decrease from the previous year but