Which sectors are ripe for M&A activity?
Afterpay’s acquisition by Square may be just the beginning for merger and acquisition (M&A) activity as the buy now, pay later sector could see further activity later this year.
Speaking to Money Management, Gillham, chief analyst at Wealth Within, said companies had built up a stockpile of cash to weather the pandemic which was now waiting to be used.
“As we know the recession was not as severe and overall Australia weathered the storm quite well. Shareholders demand that companies practice sound capital management, and part of that this means getting a good return on investment,” he said.
“The extra cash held in company’s banks accounts whilst a safety net was getting a low return due to low interest rates.”
They now had four options to use this cash; initiate strategic acquisitions, pay higher dividends or a special dividend, conduct a share buyback or undertake a capital return to investors.
Three of the big four banks had already announced buybacks; ANZ of $1.5 billion, NAB of $2.5 billion and CBA of $6 billion.
The financials were likely to have had the highest amount of excess cash as they were instructed to hold higher capital reserves during the pandemic in case of loan defaults or increased bankruptcies. They were also instructed by the Australian Prudential Regulation Authority (APRA) to restrict dividends to less than 50% of profits.
For M&A, there had already been activity around Sydney Airport and Afterpay, which rose nearly 30% after it was acquired by Square, and Gillham said buy now, pay later providers could have more M&A in the pipeline. Also included would be energy sector where there had been a merger with OilSearch and Santos.
“This year we have seen an increase in corporate actions including several of the above options and this will continue at least in the foreseeable future. Areas likely to see M&A activity will be the BNPL space, the alternative/renewable energy, energy, along with technology and financials,” he said.
AUTHOR
Laura Dew
Recommended for you
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
Responsible investment performance concerns have lessened as the market hits $1.6 trillion in AUM, according to RIAA’s annual report, but greenwashing fears among asset managers are on the rise.
