There’s a lot of money slushing round the globe. Where will it end up?
So the front page of the AFR yesterday was all about the Sydney Airport deal.
Some infrastructure investors got together and put in an offer to buy it.
(It wasn’t for sale.)
But they were flashing big money around, offering an indicative price per share of $8.25.
With the share trading at $5.81 on Friday, the share price popped over 30% at the opening yesterday, even though the board were urging shareholders not to sell.
There’s a couple of things going on here.
One is the wannabe corporate raiders are looking through the mess of Covid to a time when travel opens up again. It’s probably coming soon. The early indicators from the nations that have high vaccination rates is that travel does look like it will be possible.
So at some point Sydney Airport will be back to normal capacity. And given it’s shares were trading around the $9 mark before Covid, it’s still at a discount.
But the second thing is that there is just a lot of money slushing around the globe right now.
And that money is looking to find a home somewhere. And infrastructure is always appealing to the long money in super funds and sovereign funds.
A buyouts like this are becoming more and more common. In fact, the AFR reckons that Australia is in the midst of an extraordinary boom in mergers and acquisitions.
Figures compiled by Goldman Sachs show a record $148 billion worth of deals were announced across Australia and New Zealand in the first half of calendar 2021, about 2.6 times the five-year average of $58 million for the same period.
But the size of the deals is unusual too, with 38 per cent of deals worth between $1 billion and $4 billion and a further 37 per cent of more than $4 billion. On average, just 54 per cent of deals topped $1 billion during the past five years.
Deals are becoming more intense too, with $18 billion worth of hostile deals announced in the first half, compared to the five-year average of just $1 billion. More than 30 per cent of announced M&A volumes in the first half involved contested situations, with two or more players fighting it out.
And finally, deals are becoming more expensive, with takeovers in the first half of 2021 seeing a 51 per cent premium above a company’s undisturbed price before a deal was announced, compared to a typical pre-COVID-19 premium of 39 per cent.
Goldman Sachs’ local head of M&A, Marissa Freund, says “It’s an extraordinary year of M&A activity and really our senior people in the business can’t remember anything like this.”
Now this is all great news if you own infrastructure assets, but it also points to the factors that are driving this once-in-a-generation property boom.
I mean you probably lived through the last boom. You’ll be telling your grandkids about the boom that’s coming.
All that money is looking for a home.
Sooner or later, it winds up in land prices.
It always does.