Mergers and Acquisitions

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
05 June 2014, 2:53 PM
Sectors Covered:
Resources, Metals

Animal spirits are back and unlikely to be tamed for some time. Weak nominal GDP growth and a low cost of capital mean firms need to increasingly consider Mergers & Acquisitions (M&A) and asset divestments as well as cost-out. 

In a market with range-bound global interest rates, position into potential targets or stocks unshackling under-performing assets.

Macro backdrop to the cycle

Increasing M&A activity shows that animal spirits are stirring, with the value of deals already announced this year exceeding the combined value of deals done in both 2012 and 2013. 

Pent-up demand, some currency weakness and stronger business confidence are stoking animal spirits. Deal flow continues to be driven predominantly by cross-border interest, and the US remains Australia's main source of offshore equity capital.

Weak revenue growth and low interest rates could underpin the M&A cycle for several years.

Stocks in the mix

We're happy to buy quality names such as M2 Group (MTU), Oil Search (OSH) and Challenger (CGR) on fundamentals alone, with solid takeover appeal providing additional potential upside.

Stocks with the brakes on organic growth and currently hunting for assets include Telstra (TLS), Brambles (BXB), SEEK (SEK), Ramsay Healthcare (RHC), CSL Limited (CSL), New Hope (NHC), Wesfarmers (WES) and Myer (MYR). It's more difficult to be positioned long as an acquirer, but a good management track record of successful deal-making helps.

Poorer quality stocks that could become targets or companies likely to sell non-performing assets include Ten Network (TEN), Oz Minerals (OZL), National Australia Bank (NAB), Cabcharge (CAB) and Wotif (WTF).

More information

Morgans clients can access detailed reports on many of these stocks. If you would like more information, please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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