Mergers and Acquisitions
About the author:
- Author name:
- By Tom Sartor
- Job title:
- Senior Analyst
- Date posted:
- 05 June 2014, 2:53 PM
- Sectors Covered:
- Junior (Emerging) Resources, Bulk Materials
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.
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