Australia is in the midst of its fourth mergers and acquisitions cycle in 20 years, according to new research by Credit Suisse, with a host of companies in Australia likely to acquire or be acquired in the near future.
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Myer, Metcash and Caltex are among the acquisition targets, according to Credit Suisse, whereas Telstra, Woodside and Nine could be among the companies doing the buying.
Globally, mergers and acquisitions rose 7 per cent in 2014 compared to the previous year, said Credit Suisse. In 2015, there had been $US900 billion ($1.14 trillion) of completed or announced deals, up 15 per cent on the same period in 2014.
Heinz buying Kraft for $US55 billion, Actavis acquiring Allergan for $US65 billion, and Royal Dutch Shell acquiring BG Group for $US70 billion were among the three biggest global deals so far in 2015.
In Australia, deal activity had been "strong", said Credit Suisse, with the value of deals rising 40 per cent so far this year. The biggest so far was Japan Post's acquisition of Toll for $6 billion, two bids for iiNet around the range of $1.5 billion, and Iron Mountain's offer for recall in the region of $2.6 billion.
The bank said "history suggests we could be only half way through" our fourth M&A cycle in 20 years.
In the past three cycles, which date from 1995 to 2011, there had been an average of $US590 billion of deals where at least one Australian company had participated. There had only been $US270 billion this cycle, said Credit Suisse.
Previous cycles had peaked with an average ratio of mergers and acquisitions to market capitalisation of 22 per cent, said Credit Suisse. The current ratio was 10 per cent, which meant the current cycle still had a way to run.
Credit Suisse listed 15 Australian companies that could be targeted for acquisition, including retailers Myer, Oroton and Metcash, media groups Southern Cross Media, APN News/Media and Prime Media and concrete giant Adelaide Brighton. Oil and gas groups Caltex Australia, Senex Energy and Beach Energy are also potential targets according to the bank, with Graincorp, Whitehaven Coal, Oroton, DUET Group, STW Communication and SAI Global.
It also listed 22 companies that were potential acquirers, including Telstra, Woodside, Nine, News Corp, CSR, Seek, and Dulux.
Investors wanting to benefit should consider four things, said Credit Suisse. Firstly, buy into potential mergers and acquisition targets, such as those included on Credit Suisse's list. Secondly, big companies tend to acquire small companies, so the potential of capturing the premium the comes with a takeover bid is mostly among small companies;
A third tip is to buy what it calls "facilitators" of mergers and acquisition, who will do well out of any deals that happen. Credit Suisse sights Macquarie Group as a prime example.
Finally, Credit Suisse suggests buying the "accretive acquirers" – that is,companies that have the power to make smaller, bolt on acquisitions that keep shareholders happy.
