Merging and acquiring the right opportunities

Low interest rates and strong cash reserves are driving solid appetite for acquisition opportunities among corporate Australia, propelling merger and acquisition (M&A) levels to a 10-year high.

The volume of M&A transactions for the Asia Pacific region accounted for $A1.4 trillion, making up 28 per cent of global activity in the last 12 months according to Bloomberg data.

According to ANZ Managing Director for Institutional Australia Tammy Medard, the ongoing pandemic has not dampened demand for growth opportunities.

“We are always ready and keen to support our customers as they navigate growth opportunities or difficult times,” Medard says. “Our approach focuses on building trust with our customers so they are comfortable to involve us early in a transaction to get the right deal structure in place.”

The surge in deal activity is right across the institutional and mid-market segments according to Medard. However, she warns strong liquidity in both equity and debt markets could have an inflationary effect on asset prices.

“The message to customers is make sure you stick to your own asset valuations,” she says. “Now is not the time to significantly change your risk appetite.

“If we start seeing a fear of missing out - which we're not seeing yet and I hope we don't see - and we start seeing assets go for multiples that are unsustainable, that's what would make me nervous.”

Medard says ANZ has not received requests from companies for additional liquidity this year and this compares with last year when firms requested additional loans to help them trade through the outbreak of COVID-19.

“We're not seeing the borrowings to the levels that we would have expected,” says Medard. “Certainly this time last year, we saw a lot of shoring up of funds and really strengthening balance sheets just in case.”

Strength

Market sentiment continues to be hold up even as New South Wales, Victoria and South Australia continue with various stages of lockdown down restrictions.

Medard says the bank is still seeing strength come through in consumer behaviour and also consumer confidence as people are getting used to the ongoing restrictions.

But while confidence is holding up, the pandemic continues to have significant impact on supply chains and logistics right across the economy. In the retail sector for example, retailers not only have to grapple with lockdown restrictions on their hours of operations and the lack of foot traffic, they have to put in pre-orders for goods a lot earlier than before, Medard explains.

“The global competition for stock is high, therefore [retailers are] having to order twelve, sometimes eighteen months out where it might have been an average of about nine months, to secure their stock,” she says.

“There's a lot of risk analysis that needs to go into those orders. This is a new trend we are starting to see more and we're just keeping an eye on.”

As testament to the depth of its customer relationships, ANZ was named the number-one Institutional bank in Australia by Peter Lee and Associates, with particular reference to pandemic-related support. 

Sharon Klyne is Associate Director for Institutional Communications at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.