Australian acquisitions not for the timid

What a difference a year can make in the Australian M&A market. Twelve months ago sellers held the upper hand, conducting competitive auctions for assets that were frequently sold for handsome multiples. The winners, in a lot of cases, were those who could outbid their rivals by using cheap leverage to ratchet up the price -- a strategy frequently employed by private equity firms. Then the financial crisis hit and the flow of cheap finance was cut off, causing the highly leveraged bids to vanish. Vendors have been forced to re-evaluate their selling price, but they haven't done so readily.

"At the beginning of last year, buyers were sitting around waiting for sellers to drop their prices," says Andrew Clarke, head of M&A at Citi in Sydney. The sellers resisted and took many months to come around. When they finally capitulated, "to their surprise, the buyers weren't there anymore - they had left the room", he says.

Paradoxically, Australian M&A activity in the first quarter of 2009 looks relatively robust with $20 billion worth of deals logged by Dealogic versus $19 billion for the same period in 2008. However, most of this is M&A inflow -- involving a foreign acquirer purchasing an Australian asset -- which now accounts for 90% of all transactions. M&A outflow, meanwhile, has come to a virtual standstill, down 81% quarter-on-quarter to just $718 million.