M&A recap: ASX small cap activity is up 23 pc in 2019

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Mergers and acquisition activity in the ASX small cap sector is up 23 per cent this year. To date $5.6 billion in deals has been conducted whilst this time last year only $4.6 billion had been conducted.

Stockhead has previously looked at spinoffs, where companies will divest assets while maintaining control of themselves. We have also looked at joint ventures where two companies will go together to complete a project – a deal type common among miners.

But for companies that have inevitably consented to an M&A deal, if it has gone ahead, they no longer have control.

Mining & energy saw the most M&A activity, accounting for 41 per cent of deals in 2018 and 61 per cent so far in 2019. In 2018, consumer goods accounted for a further 30 per cent of deals but in 2019, it’s just 7 per cent.

The top mining deals

Among large resources deals included Silver Lake Resource’s takeover of Doray Minerals, Rameulis Resources’ buy of Explaurum and the takeover of Finders Resources.

In all these cases it would breathe new life into operations needing of a spark or create a significant resources player.

The buyer of Finders, Eastern Field Developments, slowly built its stake over time and resolved issues that had been plaguing the company for some time, particularly site access and geophysical survey permits.

Only days after completing the takeover of Explaurum, Rameulis Resources went to the 121 Mining Conference in Hong Kong and told potential investors the acquisition helped.

These would provide additional mine life and maximise the value of existing infrastructure. It also said strategic acquisitions were “always a consideration”. The acquisition helped it enter the ASX 300 and become Australia’s 7th largest domestic gold producer.

The Silver Lake-Doray Minerals merger went ahead with Doray’s boss giving his blessing to the merger.

“The merger will allow Doray shareholders to participate in the creation of a mid-tier gold company with two complementary and established gold camps in a Tier 1 mining jurisdiction,” said managing director Leigh Junk.

Non-resources deals

Among the non-resources sector, mergers and acquisitions seemed to occur for the same reasons to the mining sector.

But there was one key difference. Namely the negative aspect of staying small was more emphasised rather than the benefits of being big.

In April, Mareterram was taken over by South African aquaculture business Sea Harvest. That deal had been a long time coming, with Sea Harvest first buying into the company in 2016 and a poor season seeming to be the catalyst for directors resigning to the offer.

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The biggest deal in 2019 was Greencross Group which owns PetBarn and numerous veterinary practices. American private equity player TPG Capital took control for over $900 million.

Greencross founder Glen Richards, who is now a director of Healthia (ASX: HLA), admitted at the company’s last AGM it had been a challenging year. Online retailers were disrupting its business model and its earnings.

Here’s a list of all M&A deals in the ASX small cap space completed in 2019…

What about tech?

It seems at present the current M&A sector is predominantly mining. Tech was a disappointingly small portion of M&A activity.

Yet Australians should think of tech acquisitions, considering the extent to which the world’s largest tech firms, Apple, Facebook and Google do.

In recent months there has been speculation a semiconductor acquisition spree could reach Australian shores considering the promise of our semiconductor stocks and the ease for large corporates.

Read more: Do analysts believe America’s semiconductor acquisition spree could reach these small caps?

“Most of our clients approach the prospect of disruptive M&A from two distinct angles; either as a disruptor or as a response to disruption,” said Deloitte M&A partner Ian Turner.

“Where the acquisition is a relatively small one, companies are more inclined to acquire outright than enter into a joint venture, using the control the have to bring in-house.”

While tech enthusiasts may have a while to wait, the mining M&A bankers are in glory days right now.

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