The takeover deal-making for undervalued Australian companies has been in full swing this year. But if interest rates rise later in the year, it may be harder to make the takeover arithmetic work.
Cashed-up companies, private equity firms and some large superannuation funds are combing through listed and unlisted businesses, looking for opportunities to acquire.
“Money is everywhere," says Simon James, a partner at HLB Mann Judd's advisory and audit business.
Competition is intense, with bidders lamenting the lack of good investment prospects and having to pay premium prices.
Even Warren Buffett, with a war chest of billions, has struggled to find something to buy. It has taken the investment maverick and founder of Berkshire Hathaway six years to make a move. He has picked up Alleghany, the holding company for a range of businesses, including insurance, in a $US11.6 billion ($15.5 billion) deal as well as building an $US8 billion stake in the oil producer Occidental Petroleum.
For shareholders, takeovers and mergers of ASX-listed companies can be a windfall. There can be multiple bids in some instances, pushing the share price even higher.
But watch out if you are invested in a company that makes a takeover bid. You could see the value of your shares fall. This occurs when the market worries that the acquirer may be paying too much for the target. Also there's a history of expanding companies not digesting acquisitions very effectively. This can concern investors, too.
Prices are pushed up
Typically, the bidding company will pay around 20% to 30% above the pre-bid share price, according to James. This reflects the market view that the acquisition translates into operational synergies and sometimes tax efficiencies.
Making higher bids to secure board recommendations and win over target shareholders is pushing up share prices.
Esta historia es de la edición May 2022 de Money Magazine Australia.
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