Regulators were actively involved in M&A deals in FY23, with 53% of all transactions drawing regulatory attention, according to a new report from global law firm Herbert Smith Freehills (HSF).
In FY24, HSF predicts that regulators will continue to be actively involved in transactions, with the firm suggesting deal participants would be wise to map out their strategy for obtaining regulatory approvals and not leave them to chance.
Released yesterday (5 October 2023), the fifteenth edition of HSF’s Australian Public M&A Report 2023, examines the 56 control transactions involving Australian targets listed on the Australian Securities Exchange (ASX) conducted by takeover bid or scheme of arrangement in the 2023 financial year.
The report found that the energy and resources sector was the primary driver for Australian public M&A activity in FY23, with deals valued at $64 billion, representing 85% of all transactions by value. This was considerably higher than the $11.8 billion that originated from the sector in FY22.
According to HSF, the 4 largest deals of FY23 were all in the energy and resources space ─ Newmont’s (NYSE:NEM) proposed acquisition of Newcrest (ASX:NCM), Brookfield’s proposed acquisition of Origin Energy (ASX:ORG), BHP’s (ASX:BHP) acquisition of OZ Minerals (ASX:OZL), and the proposed Livent (NYSE:LTHM) and Allkem (ASX:AKE) $16 billion mega merger. HSF is acting on the Newcrest and Origin transactions.
HSF partner Kam Jamshidi says Australia is blessed with resources and represents an attractive jurisdiction for investors looking to deploy capital with confidence.
“While there were still more Australian bidders by deal volume, FY23 saw signs of foreign bidder activity moving closer to pre-pandemic levels. North American bidders were particularly active in Australian M&A, representing 70% of all deals by value and 21% by number, suggesting a preference for large deals. That has in part been driven by an attractive exchange rate for those bidders.
Consistent with FY22 and FY21, activity from Asian bidders was generally low in FY23, representing only 4% of deals by volume and 3% by value. We think activity from the region should pick up in the medium term, providing a further leg of growth for M&A activity.”
“Consistent with FY22 and FY21, activity from Asian bidders was generally low in FY23, representing only 4% of deals by volume and 3% by value. We think activity from the region should pick up in the medium term, providing a further leg of growth for M&A activity“
The increasing interest from regulators in M&A deals comes after the Foreign Investment Review Board (FIRB) recently implemented a new register of foreign ownership of a myriad of Australian assets. FIRB is a non‑statutory advisory body.
This register coincides with the introduction of obligations on foreign persons to report to FIRB their ownership of these Australian assets.
A new register with complementing reporting obligations took effect from 1 July 2023. This register is being administered by the Australian Taxation Office (ATO) and replaced the existing registers (namely the agricultural land register, residential land register, and water register).
The amendments to the reporting obligations now mean all required reporting must occur within 30 days of each relevant registrable event day, according to law firm HopgoodGanim. While the registrable event day will vary on the type of event under the legislation, it is generally either the date on which the notifiable event occurs or when the foreign person is aware, or reasonably ought to be aware, that the relevant event has occurred.
Law firm Allens notes that responsibility for making decisions on whether or not to approve foreign investment proposals rests with the Australian Treasurer. When making these decisions, the Treasurer is advised by FIRB, which examines foreign investment proposals and advises on the national interest implications.
Entities are designated as foreign persons if a foreign holder holds a ‘substantial interest’ in the entity – that is 20% or more. Trusts and limited partnerships are similarly designated, through their trustee or general partner, based on foreign holders’ interests in the trust or limited partnership.
Acquisitions of interests in mining or production tenements are notifiable as an acquisition of an interest in Australian land.
Acquisitions of interests in mining or production tenements are notifiable as an acquisition of an interest in Australian land. This includes a ‘mining or production tenement’, as well as mining leases and licences, and petroleum production leases (both onshore and offshore). It also includes rights that preserve a right to recover minerals, oil or gas, leases under which the lessee has rights to recover minerals, oil, or gas (which would extend to subleases), and an ‘interest’ in any of these (including, certain interests in profit/income sharing agreements).
However, mere rights to revenue streams are not considered as a mining or production tenement, except if they are an asset of a national security business or the tenement is national security land.
Allens further notes the recent FIRB changes include increased monetary thresholds – $310 million (previously $289 million) for acquisitions of Australian businesses by foreign persons, unless the higher $1.339 billion threshold below applies.
Other changes include $1.339 billion (previously $1.250 billion) for acquisitions of Australian businesses by foreign persons who are Free Trade Agreement (FTA) country investors acquiring non-sensitive businesses. Another change is the $67 million (previously $63 million) for acquisitions of Australian agribusinesses by foreign persons other than certain FTA country investors who are entitled to the higher $1.339 billion threshold.
The acquisition of shares in an Australian mining or oil and gas company is also considered a significant action where it meets the prescribed threshold (generally $310 million), where the company carries on an Australian business and the action results in a change in control.
A transaction may also be notifiable when acquiring an interest in an Australian land corporation where the value of the company’s interests (including mining or production tenements) exceeds 50% of its total assets by value.
Write to Adam Orlando at Mining.com.au