Azure Capital’s diverse group of global M&A leaders discuss the changing cross border M&A landscape

Azure Capital
Wed, 18 March 2021

Highlights:

  • 150 executives, directors, industry participants and advisers attended the forum hosted by corporate advisory firm Azure Capital featuring representatives from the Reserve Bank of Australia, Natixis and PJ Solomon.
  • The past year has seen an unprecedented level of volatility in global markets following the COVID-19 pandemic. However, after a period of significant deterioration in March 2020, markets have now recovered to above or near their pre-COVID-19 levels with the introduction of new vaccines and monetary and fiscal stimulus.
  • Global M&A activity rebounded strongly in the 4th quarter of 2020 and is expected to accelerate into 2021. 
  • Panellists discussed key themes underpinning M&A markets including heightened regulatory restrictions, unprecedent access to capital, increased corporate focus on ESG, Chinese economic growth and the role of technology in executing M&A transactions.

On 18 March 2021 over 150 executives, directors, industry participants and advisers gathered at the Parmelia Hilton in Perth to listen to a high-calibre panel discuss trends in the global economy and M&A markets through the COVID-19 pandemic. A diverse group of industry leaders joined the panel, including:

  • Mark Barnaba, Board Member of the Reserve Bank of Australia
  • Marc Vincent, Global Head of M&A at Natixis
  • Marc Cooper, Chief Executive Officer at PJ Solomon
  • Miranda Zhao, Head of M&A (Asia Pacific) at Natixis; and
  • Simon Price, Joint Managing Partner at Azure Capital.

The session was chaired by Azure Capital Partner, David Flynn, who opened the evening comparing the difference between the current economic environment to this time last year, referencing a news headline which read: “Dow falls more than 1,300 points, S&P loses 5 percent as COVID-19 sell-off reaches a new low”.

To further set the scene, it was noted that global unemployment skyrocketed, crude oil prices went negative, British GDP fell 10%, the largest since the Great Frost of 1709, U.S GDP fell 33% in the June quarter alone and Australian GDP fell 7%, the largest on record. Against this backdrop of economic instability, the surprising market recovery over the past 12 months, driven by unprecedent levels of simultaneous  monetary and fiscal stimulus was reflected upon, including the rise of retail traders which David Flynn put simply as: “bored people sitting at home who found a new game called the stock market”.

China was one of the first countries to emerge from COVID-19 disruptions and resume normal production, and it is reflected by the fact that China’s GDP grew at 6.5% in Q4, and 2.3% for the year as a whole – compared to a contraction of -3.5% globally in 2020. M&A has remained active, although characterised by large domestic and in-bound transactions which Miranda Zhao explains are “due to the tighter regulatory environment globally, including tougher foreign direct investment rules recently imposed by Australia, Europe, and the U.S on cross-border M&A, while deals inbound to China have doubled as a result of government policy to open-up sectors to capital from overseas”.

Europe emerged as a major epicentre for COVID-19 with extended government lockdowns marring typical business operations through 2020 and into 2021. However, despite social distancing restrictions, the M&A market has remained active which Marc Vincent believes has given rise to “new digitalised M&A tools and techniques, including increased Teams and Zoom meetings, due diligence via drones in factories, practices that we could not imagine 18 months ago but have allowed transactions to occur without a single physical interaction”.

Similarly U.S advisers and companies have had to rely on new technologies and ways of doing business to conduct M&A transactions through COVID-19 lockdowns, however this has not deterred M&A activity which Marc Cooper notes to be “on fire” and PJ Solomon “can’t hire junior bankers in New York due to current market demand”. He further explained “the central theme which is pushing this market higher is liquidity, the U.S. is awash with liquidity on the back of US$4bn in fiscal stimulus, and quantitative easing and ultra-low interest rates imposed by the Fed, ultimately reaching a point where practically any company can access capital markets in the current environment.”  

The Reserve Bank of Australia has taken a similarly expansionary stance, conducting quantitative easing, cutting the cash rate and providing term funding facilities to the commercial banking sector. While current levels of monetary stimulus are not sustainable in the long-term.

On current key themes in the Australian M&A market, Simon Price comments, amongst improved access to capital, “China has a particularly strong influence on the Australia market and, while it has become increasingly more difficult to attract funds from China for transaction purposes prior to the pandemic, recent growth in China has resulted in a substantial increase in commodity prices which has increased resource related activity locally, while also having the flow on effect of benefiting other sectors in the economy and government budgets”. Moreover, Simon Price notes, given the lessor impact of COVID-19 in Western Australia, the practice of executing deals has remained more traditional to overseas markets where “we continue to rely, although perhaps to a lesser extent, on face-to-face meetings, however what has gone on in the U.S and Europe has shown us that necessity is the mother of invention and people will find a way to work around issues in executing transactions”. 

Given the growing presence of Australian renewable energy M&A, David Flynn was keen to gather insight into the thinking of FMG being one of Australia’s leading corporates in the shift to green energy. Mark Barnaba, Deputy Chairman of FMG comments “FMG does not see itself as a mining company, rather a company that manages development in a professional and hard-driven manner with a view that growth comes from a discontinuity causing markets to open and where we believe something is going to cause fundamental change”. He further draws comparisons to FMG’s establishment in 2003 noting the current move into green energy, particularly hydrogen, represents a new frontier for the company alongside their existing iron ore operations and allows them “to be at the forefront of climate change, one of the single biggest ruptures that will come through the global economy in the next ten years”.

Marc Cooper also said that the renewables M&A sector has been active in the U.S over the past 10 years and expects an uplift under the Biden administration. He explains “spending will come from regulation and a loosening up of approvals, potential tax advantages and other government incentives to attract investments.” 

As a final question, David Flynn posed to the panel what they expect to see as the single largest characteristic to define the past year when looking back in 10 years’ time. Amongst responses was social change, both from a work perspective and a greater appreciation of other aspects not necessarily related to the pandemic such as women’s rights and climate change, globalisation, including the speed with which country specific events interact globally and the need for coercion from an economic perspective, the shift to green energy and the increased standing of China and Asia in the global economy.

-ENDS-

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