In the latest piece of equity research released by Credit Suisse, research analysts Hasan Tevnik CFA and Damien Boey pointed to the recovery in global M&A with 54 $1 billion-plus listed target deals announced this year.
The most recent evidence of the global recovery is pharmaceutical giant Pfizer’s bid for Astra Zeneca, which would be the biggest acquisition of a listed company in over 10 years.
“Other recent deals include Comcast buying Time Warner in the US for $68 billion, Valeant Pharma buying Allergan in the US for $44 billion, the $37 billion Lafarge and Holcim merger in Europe,” said Credit Suisse.
There have also been a spate of deals in Australia, with around $5 billion worth of offers for Australand, David Jones and Goodman Fielder, said the report.
To take advantage of the trend, the “most obvious” course of action for Australian investors is to buy the companies that help facilitate the deals, said Credit Suisse.
Computershare and Macquarie group, in particular, are well positioned in this regard, said the report.
While corporate action currently makes up only eight per cent of Computershare revenues, that figure was 18 per cent in the 2007 and 2008 financial years, said Credit Suisse.
“Current valuations imply a modest pick-up in M&A activity. A risk for Computershare, especially now, is the stronger Australian dollar,” said the report.
“Much of the potential earnings increase from a pick-up in M&A activity may be negated with further Aussie dollar strength in the short term,” said Credit Suisse.
When it comes to Macquarie Group, M&A and advisory incomes was only eight per cent of 2013 financial year operating income versus the cyclical peak of 17 per cent in the 2008 financial year.
Along with buying the ‘facilitators’ of M&A activity, Credit Suisse also suggested that investors could overweight small caps versus large caps – “after all, large companies acquire small ones”.
Thirdly, investors should consider the speculated deals of the past.
As well as being a facilitator of deals, Macquarie Group is also highlighted by Credit Suisse as a future acquirer – with ING DIRECT Australia potentially in its sights.
“[Dutch firm] ING has already sold other assets in Australia and other ING DIRECTs around the world,” said Credit Suisse.
“The best fit would be for Macquarie, but Bendigo Bank and Bank of Queensland will be interested as well,” said the report.
