SYDNEY (Reuters) – Australian inbound M&A deals declined the most in a quarter of a century as plummeting commodity prices and a faltering local stock market challenged the appetite of overseas investors for the country’s assets.
Inbound deals slumped 86 per cent to $2.9 billion in the current quarter from April-to-June, according to data compiled by Thomson Reuters. The drop was the sharpest since the third quarter of 1989.
Australia’s resources-reliant economy is feeling the pain of China’s slowdown, which has helped depress prices of key exports coal and iron ore. The stock market, which economists had forecast would add 15 per cent in 2014, has slipped about 5 per cent this month, wiping out most of its gains for the year.
But dealmakers said it was too early to pronounce the M&A boom over, saying buyers were more likely to be shying from larger, more ambitious takeovers because of broad global factors. The recent drop in the Australian dollar to multi-month lows may also tantalise prospective investors looking long-term.
“The big splashy public deals of the first half, we haven’t really seen many of those announced in the third quarter,” said Rebecca Maslen-Stannage, a partner at law firm Herbert Smith Freehills in Australia who specialises in M&A.
“Our activity levels are still very high, but there’s no doubt, with the market having come off, that’s spooked a few people,” she said.
In the first nine months, inbound M&A deals more than doubled to $32.4 billion from a year earlier, data compiled by Thomson Reuters shows.
Hong Kong-based Cheung Kong Infrastructure Ltd’s $3.7 billion takeover of gas pipeline owner Envestra Ltd and Singapore property group Frasers Centrepoint Ltd’s $3.4 billion purchase of Australand Ltd helped nearly double the average deal size of inbound, outbound and domestic deals to $120.9 million from a year earlier. The number of inbound deals, however, fell 24 per cent.
Anthony Sweetman, head of Australia and New Zealand investment banking at UBS AG, said the M&A pipeline still appeared strong and quarterly figures may not reflect the often stilted flow of announcements that can follow months or even years of discussions between firms.