Advisers compete on 733 deals
Business News, Mark Beyer, Monday, 20 January 2020, © Copyright 2020 Business News Pty Ltd.
Azure Capital, Canaccord Genuity and DLA Piper were among the most active advisers on corporate finance deals in 2019.
The annual Business News review of corporate finance deals has identified some major shifts among key advisers and market trends.
The December quarter was relatively quiet in terms of the number of corporate finance deals in Western Australia, but some large transactions boosted deal values for the year.
The BNiQ database has recorded 45 M&A deals worth a collective $3.9 billion.
That lifted the annual totals to 235 deals worth $12.1 billion.
In regard to capital raisings and other equity capital markets (ECM) transactions, the BNiQ database captured 118 deals in the December quarter worth $3.3 billion.
For the year as a whole, there were 498 ECM deals worth $6.5 billion.
The total value of corporate finance deals in 2019 was greatly boosted by two WA goldminers buying Kalgoorlie Consolidated Gold Mines - the owner and operator of the famous Super Pit.
Saracen Mineral Holdings bought Barrick Gold's 50 per cent stake in November, followed a month later by Northern Star Resources buying Newmont Goldcorp's equal stake.
Northern Star paid slightly more ($1.16 billion) because its stake included the rights to operate the goldmine.
This was the largest completed transaction for the year.
Wesfarmers announced a larger deal - its bid for mining company Lynas Corporation was valued at $1.5 billion - but that never got off the ground.
To put the Northern Star deal into context, there were eight announced deals in 2018 with a larger value.
These included Wesfarmers' demerger of Coles, Santos's purchase of Quadrant Energy, BGH Capital's purchase of Navitas, and the state government's privatisation of parts of Landgate.
Top M&A advisers
Azure Capital was the most active adviser in the M&A segment, having worked on 13 announced transactions in WA with a value of $1.3 billion.
Its 2019 record confirmed its status as the busiest advisory firm in WA.
Azure has advised on 86 publicly announced transactions during the past decade, more than any other advisory firm in the WA market, according to the BNiQ database.
Global firms such as Macquarie Capital, UBS and Goldman Sachs have worked on fewer deals by number but with a higher value.
That pattern continued in 2019, with UBS advising on six M&A transactions with a deal value of $3.8 billion.
That included advising Wesfarmers on its bids for Lynas Corporation and aspiring lithium miner Kidman Resources.
The Perth offices of global firms have continued to pick up work that has little, if any, connection to WA.
A prime example is Peter Watson, who runs Goldman Sachs' national mining practice from Perth.
He led the team that advised Sydney-based goldminer Evolution Mining on its purchase of Newmont Goldcorp's Red Lake mine in Canada.
Goldman also advised Saracen on its Super Pit deal and was joint lead manager (with RBC Capital Markets) for the associated $796 million capital raising.
Among the Perth-based firms, only Sternship Advisers came close to Azure.
The West Perth-based firm, which has just four staff, had a hand in seven M&A deals worth $1.3 billion.
Those numbers were boosted greatly by its role as a joint adviser (with UBS) to Pacific Energy on two competing takeover bids.
Azure's growth plan
Azure joint managing partner Adrian Arundell described 2019 as a tale of two halves, with a healthy pick-up in activity in the second half of the financial year.
"It's the weight of capital in the markets and the chase for returns," Mr Arundell said.
"Interest rates are lower, the ASX market has been stronger, and confidence starts to come in and people start to do deals."
He said an increasingly important factor in the market was the money in private equity funds.
"There is more money than ever in private equity and those guys are compelled to do deals because they have to dispense their capital.
"We're at an all-time high in terms of unspent private equity and direct super fund investment."
He said the transaction that signalled a shift was BGH Capital's $1.97 billion acquisition of education services company Navitas.
"That was a real moment where people realised the power of private equity," Mr Arundell said.
"They showed that private equity pays more than the public market can value assets, by definition."
Private equity funds were involved in several other takeover deals last year but were not always successful.
A notable example was the bidding war for Pacific Energy, which builds, owns and operates power stations for mine sites and regional towns.
The Queensland government's investment arm, QIC, was ultimately successful but only after lifting its offer to $470 million to match a competing offer lodged by Infrastructure Capital Group and OPTrust.
Mr Arundell said Pacific Energy was an example of investors chasing 'infrastructure plus' assets - it has similarities to traditional infrastructure assets but with higher returns.
Private equity groups are renowned for swooping on distressed assets. A topical example was Carlyle's $120 million acquisition of Pioneer Credit.
Pioneer was effectively a forced seller after it came under pressure to change its accounting policies, leading in turn to breaches of its banking covenants.
Other private equity groups active in WA included Ibaera Capital, which is buying Azumah Resources, and Allegro Funds, which bought a minority stake in Perth Radiological Clinc.
Another buyer was Potentia Capital, which in September acquired a majority holding in Education Horizons Group - a holding company that was established by Joondalup-based SEQTA Software.
That followed Potentia's acquisition last year of a majority holding in Nedlands-based mining software firm Micromine.
Azure's advisory work last year included several defence mandates for takeover targets, including Panoramic Resources, Pioneer Credit and Azumah Resources.
"They are the mandates you want as an adviser," Mr Arundell said.
"A company is saying, at the most sensitive time, that nobody knows us better than you.
"You have to spend time with the company to get to that point. That's really rewarding."
Mr Arundell believes Azure has also been helped by its longevity in the market and the depth of its team.
Azure has one of the largest corporate finance teams in WA, with 27 professional staff including eight partners.
Big accounting firms, led by EY and Deloitte, have more corporate finance staff but they do a lot of back-end work such as valuations rather than leading transactions.
Other firms with substantial corporate finance teams including stockbrokers such as Argonaut, Canaccord Genuity and Hartleys, which have a principal focus on capital raisings.
Macquarie Capital, UBS and Goldman Sachs have small Perth teams but draw on their global networks.
Mr Arundell said Azure was broadening its business, with help from its 52 per cent shareholder, French financier Natixis.
This includes the two firms working together on transactions.
For instance, Natixis underwrote the debt finance for OPTrust's bid for Pacific Energy.
In December, the two firms were appointed by global energy company Engie to sell its Willogoleche wind farm in South Australia.
A notable initiative for Azure will be the opening this month of its Sydney office, headed by partner Harrison Moore, who joined the firm in 2014.
King & Wood Mallesons and DLA Piper topped the 2019 league table for law firms.
KWM advised on 17 M&A deals and five ECM deals with a combined value of $4.4 billion.
This included advising US-based Newmont Goldcorp on the sale of its 50 per cent stake in Kalgoorlie Consolidated Gold Mines.
It also advised Sydney-based Lynas Corp on the defence of Wesfarmers' takeover offer.
DLA Piper had a busy year, advising on 20 M&A deals and 27 ECM deals with a combined value of $4.5 billion.
Its major clients for the year included Saracen Mineral Holdings, Pacific Energy, Resolute Mining and IMF Bentham.
Other law firms that ranked high on the league tables included Herbert Smith Freehills, Ashurst and Gilbert & Tobin.
Steinepreis Paganin continued to be the busiest law firm, advising on 70 capital raisings and 12 M&A deals worth a combined $730 million.
That kept it ahead of arch competitor HWL Ebsworth Lawyers, which acquired Bellanhouse Lawyers during the year.
HWL advised on 47 capital raisings and 12 M&A deals.
New broker ranking
Canadian broking firm Canaccord Genuity has greatly boosted its profile in the WA market following its acquisition of Perth-based Patersons Securities.
The combined group advised on 62 ECM transactions last year worth $1.4 billion.
That made it the busiest broking firm in the WA market (by number of deals) and a close second to Macquarie Capital in terms of deal value.
Canaccord's deal flow included being joint lead manager (with Macquarie Capital) for Northern Star's $765 million placement, as well as numerous smaller deals that were the traditional preserve of Patersons.
If the merged firm can continue to combine the strengths of its two constituents, it would challenge the standing of local market leaders Euroz Securities and Hartleys.