Financial services ripe for mergers and acquisitions
August, 01st 2017
The financial services industry is predicted to prove a hotspot for M&A activity over the next 12 months, particularly around demergers.
Commercial law firm Minter Ellison singled out the sector as one of five industries ripe for mergers and acquisitions, driven by a resurgence in private equity as well as strategic acquirers looking to 'buy growth' in mature industries.
In its Directions in Public M&A Report 2017, the law firm anticipates an increase in demerger transactions, largely motivated by financial institutions looking to shed their wealth management businesses.
"We also see potential for an increase in demerger transactions, particularly as the banks seek to demerge their wealth management and insurance operations, in part, due to allegations of misconduct," the report reads.
The revival of private equity using the consortium model to undertake acquisitions is also a trend that is expected to continue, with alternative investors such as pension funds intensifying competition for assets through their willingness to participate in consortia seeking to acquire Australian targets.
"We expect the renaissance of private equity interest in ASX-listed companies to continue, partly because debt funding remains cheap and partly because PE funds are seeking quality assets in which to invest their capital," the report reads.
Minter Ellison also warned of the greater involvement of the Australian Taxation Office in such activities, with the regulator increasingly looking at dividends and franking credit balances and often having a say in how they are distributed.
As such, those involved in M&A must ensure they can extract the franking credits without an integrity measure applying - to provide shareholders with certainty, they require the ATO's approval.
"In particular, the payment of special dividends is a case where companies will seek an ATO class ruling on how the dividend will be treated. This will provide additional certainty to shareholder's target company that franking credits will be available," the report says.
Other sectors expected by Minter Ellison to see a higher volume of M&A activity - and likely impacting investment portfolios nationwide - were health and aged acre, IT and software services, food and agribusiness and infrastructure.