Chapter 4 of Gilbert + Tobin’s Takeovers + Schemes Review 2023 (below) explores the involvement of foreign bidders in public mergers and acquisitions in 2022.

Chapters:

• Key Highlights - An analysis of Australian public mergers & acquisitions in 2022
• Chapter 1 - Market activity: M&A activity stabilises in 2022 after all time high of 2021
• Chapter 2 - Sector analysis: exploring the sectors of interest in 2022
• Spotlight - technology public M+A
• Chapter 3 - Public M&A: schemes, takeovers and pre-bid stakes – trends in 2022
• Chapter 4 - Involvement of foreign bidders in public M&A in 2022 & FIRB considerations
• Chapter 5 - Public M&A: consideration types and sources of funding in 2022
• Spotlight - decarbonisation and M&A
• Chapter 6 - Success factors in public M&A in 2022
• Chapter 7 - Transaction timing in public M&A in 2022
• Chapter 8 - Implementation agreements and bid conditions in public M&A transactions in 2022
• Chapter 9 - Regulator influence, trends and developments in public M&A in 2022

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Deals involving foreign bidders in 2022 accounted for $26 billion, down from a record $61.9 billion in 2021 (which represented a high since we commenced publishing this Review over 10 years ago). That said, if we exclude the $39 billion Afterpay / Block, Inc outlier deal from 2021’s numbers, the aggregate value of foreign bids in 2022 was $3.1 billion higher than 2021.

For the first time since 2017, foreign interest in Australian ASX listed companies increased. Foreign bidders were involved in 46% of the total number of transactions, up from 32% in 2021. This is evidence of an increasing willingness for foreign investment as borders and markets continued to open following the prolonged disruptions resulting from the COVID-19 pandemic.

The value of foreign bids remained a driving force in the Australian market, with 58% of total deal value derived from foreign bidders. This included two of the three biggest transactions for the year, being Blackstone Inc’s $8.9 billion acquisition of Crown Resorts and HOCHTIEF AG’s $6.8 billion acquisition of the CIMIC Group (albeit starting with a ~78.6% controlling pre-bid stake).

The foreign interest was predominantly from North America and Europe. No formal bids were made by Asian companies in 2022.

We explore the main themes of foreign investment regulation and foreign bids in 2022 as follows.

Foreign investment regulation and FIRB

Critical infrastructure assets

In 2022, foreign investors felt the full force of the December 2021 amendments made to the Security of Critical Infrastructure Act 2018 (Cth) (SOCI Act). The definition of “national security business” in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) is tied in part to the definition of “critical infrastructure asset” in the SOCI Act, so these amendments had the effect of broadening the national security business categories from owners and operators of specified assets in the electricity, gas, ports and water / sewerage sectors to include owners and operators of additional specified assets in aviation, banking, broadcasting, data processing, data storage, the defence industry, domain name systems, education, energy market operators, financial market infrastructure, food and grocery, freight infrastructure, freight services, hospitals, insurance, liquid fuel, public transport, superannuation and telecommunications sectors. While the specific assets covered are relatively narrow, the breadth of the sectors meant more transactions were caught by the zero dollar threshold in 2022 as compared to 2021 (although still less than 2020, when the $0 thresholds applied across the board).

Of particular concern are those “critical infrastructure assets” which do not have embedded in their definitions any kind of materiality thresholds – for example, critical aviation assets and critical telecommunications assets, which both capture a broad range of assets that are not actually “critical” in any plain English sense of the word, and those which are poorly defined and could benefit from further guidance, such as critical data storage and processing assets.

Applications and fees

FIRB has been stepping up its compliance function for many years. 2022 saw both a higher incidence of interactions with the FIRB compliance team within Treasury than was previously the case and the first civil penalties issued.

The new Labor government has also scrapped any pretence that the application fees do not have a function beyond cost recovery, with the government following through on a little focused on election promise to double application fees in July 2022 as a budget repair measure. The fees now range from a low of $4,000 to the very significant amount of $1,045,000. The higher fees have meant fewer parties willing to lodge “voluntary” applications and also fewer applications to test the boundaries of unclear legislation. That said, FIRB has shown a willingness to voluntarily refund fees where experimental applications were lodged and it was concluded that FIRB did not have jurisdiction. The higher fees have also meant that in competitive bid processes for high value assets, buyers are reticent to comply with the seller’s preference for binding bids to be made with all necessary regulatory approvals, as the risk of the high FIRB filing fee becoming a sunk cost for an unsuccessful bid almost always outweighs any potential timing benefit from an early application.

Impact on tech start-ups

Another interesting trend has been the extent to which FIRB has been discussed by deep-tech start-ups. The possibility that:

• FIRB could knock back prospective investors in the future, however low the risk; or
• a prospective investor might have to pay “extra” in the form of legal and application fees in order to invest in the start-up,

is now a real consideration when founders consider where to set up shop. This is because future growth might be impeded by any factor that could prove to be a headwind in relation to a capital raising round, and has to be factored into their strategic planning. This is particularly the case if the start-up is involved in a sensitive sector (like a national security business or healthcare where they may have government clients or handle significant amounts of data) and prospective investors fall into the broad category known as “foreign government investors” (which includes not just sovereign wealth funds but also things like public pension funds).

Application withdrawals and FIRB rejections

As always, while the vast majority of transactions are still approved, the true scale of rejections cannot be determined because of the practice of quietly withdrawing applications after preliminary determinations have been made that the transaction is contrary to the national interest (or national security, where applicable).

While FIRB does report on the number of withdrawals (and is to be commended for introducing quarterly reporting in recent months), there are also other reasons to withdraw applications, making those statistics difficult to interpret. However, rejections appear to be increasing.

No Chinese public M&A bids

The government’s tougher stance on national security has led to changes in business behaviour, with Chinese bidders continuing to opt out of processes that involve national security businesses on the basis that approval is unlikely. It is too soon to tell whether the recent easing in geo-political tensions between the Australian and Chinese governments will encourage more Chinese bidders to enter the Australian public M&A market, and in any event, there is unlikely to be any change in the short to medium term, particularly when it comes to Chinese investment in national security sectors.

Public M&A transactions in 2022

Foreign interest in Australian ASX listed companies increased in 2022, with 46% of announced deals over $50 million involving a foreign bidder, up from 32% of deals in 2021. With borders opening and the economic challenges of COVID-19 beginning to ease, the increased number of foreign bidders was largely buoyed by interest in the professional services and energy & resources sectors (see our Sector analysis: exploring the sectors of interest in 2022 chapter for more details).

However, as the pandemic continued to place major strain on supply chains and with the sustained focus on foreign investment regulation following changes to the FATA and the SOCI Act which became effective in 2021, it came as no surprise that the headline percentage of foreign bidder acquisitions in Australian public M&A in 2022 remained well below pre-pandemic levels, despite the uptick since 2021.

Foreign bidders by number of transactions

Indeed, the total number of foreign acquirer public M&A deals was 19 in 2022, which was only one fewer than the number of foreign deals in 2021, which overall was a record year for M&A.

When considering transaction value, deals involving foreign bidders accounted for $26.1 billion, which was significantly down on the $61.9 billion recorded in 2021. That said, if we exclude the $39 billion Afterpay / Block, Inc outlier deal from 2021’s numbers, the aggregate value of foreign bids in 2022 was $3.1 billion higher than 2021. 

Foreign bidders by value

Foreign bids comprised 58% of aggregate transaction value of all public M&A deals in 2022. It is important to note, however, that over 70% of the total value generated by foreign bidders in 2022 was attributable to only three transactions, being Blackstone Inc’s $8.9 billion acquisition of Crown Resorts, HOCHTIEF AG’s $6.8 billion acquisition of CIMIC Group and the Brookfield led consortium’s $3.4 billion acquisition of Uniti Group.

As with previous years, foreign bidders remained significant players in the highest value public M&A transactions in 2022, and we predict that they will continue to be so. For instance, at the time of writing, two potential mega foreign deals were on the cards, including Brookfield / EIG’s revised $15.3 billion non-binding proposal for Origi and Newmont’s $21.5 billion scrip proposal for Newcrest, although this offer has been rejected by the board to date.

Six of the nine deals with an implied market value exceeding $1 billion were either foreign or had a significant foreign component:

• HOCHTIEF AG’s $6.8 billion acquisition of CIMIC Group
• Brookfield led consortium’s $3.4 billion acquisition of Uniti Group
• PGGM’s $1.3 billion acquisition of Irongate Group
• Cooke Inc’s $1.1 billion acquisition of Tassal Group
• Thoma Bravo LP’s $1.1 billion acquisition of Nearmap 

Where did the bidders come from?

As illustrated in the world map below, in 2022 foreign bidders came primarily from North America (United States and Canada) with a number of other continents and countries also represented, including Europe (United Kingdom, the Netherlands and Spain), South America (Brazil) and Africa (South Africa).

Looking at the deals by country and region, there has been a notable decline in the spread of countries bidding on Australian entities:

• North American bidders were involved in 14 deals in 2022 (up from 11 deals in 2021);
• Europe had only four bidders, from England, the Netherlands and Spain (down from six in 2021); and
• Amongst the rest of the world, there was a single bid involving each of Brazil and South Africa.

Since the tightening of foreign investment regulatory oversight in 2021, we have seen an increasing trend of foreign bids coming from Western countries. However, 2022 heightened this concentration as North American, particularly US, investment in Australian assets soared.

Proportion of transactions by region over time

The relative strength of the US dollar against the Australian dollar will also make Australia attractive for US investors. Coupled with instability in other regions of the world (particularly Europe and Asia), Australia is well-positioned to remain an attractive market for US investment in 2023 and beyond.

Significantly, no Asian bidders made any binding public M&A proposals in 2022. The geo-political tensions with China and the continued (federal government and media) sensitivity towards Chinese foreign investment, combined with the government’s tougher stance on national security, resulted in zero Chinese binding proposals for the second year in a row. While tensions between the Australian and Chinese governments appear to be thawing, it will take some time for connections to be re-established and for the outlook for Chinese participation in public M&A to improve.

Interestingly, for the first time since we commenced publishing this Review over 10 years ago, there were also no bidders from elsewhere in Asia. This contrasts to 2021, where there were bids from Western allies in Singapore, South Korea and Indonesia.

Proposed acquisitions by Chinese acquirers including Hong Kong (2014-2022)

Foreign bidders’ strong success rates

Foreign bidder success rates in public M&A transactions continued their upward trajectory at 94% compared to 79% in 2021.

2022 was the most successful year for foreign bidders in over a decade and built on the significant year-on-year increase seen in 2021. This success rate can be largely attributed to the friendly nature of the foreign bids, with all foreign bids being (at least initially) recommended by the board.

Following on from 2021 which was a once in a generation public M&A boom, the increased success in 2022 can also be attributed to a relative normalisation in asset pricing with bidders more accurately assessing value and completing deals based on agreed valuations. This proved an issue during the pandemic-plagued 2020 where opportunistic bids and unstable market conditions led to an increase in unsuccessful bids due to the bid-ask spread between targets and bidders.

As with 2020 and 2021, no listed company M&A deal failed for want of getting FIRB approval (at least not any transactions that became public).

For completeness, it should be noted that this Review does not record confidential non-binding indicative offers which may not become public if rejected. If one takes this into account, the true success rates may have been lower.

Foreign bidder success rates

^{The success rate for 2022 does not include seven transactions which were current as at 28 February 2023. The success rates for 2017 to 2021 have been updated to reflect the ultimate outcome of all transactions which were analysed in those past Reviews.}