Snapshot for week beginning 21 February. The Australian M&A market is abuzz with anticipation. A significant banking deal sets the tone for a year billed as the year of the return of consolidations.

An environment of historically low interest rates positions M&A as a significant means of achieving growth and generating returns.

The context offers great opportunities for private equity firms looking to deploy capital and strategic buyers focused on complementary acquisitions.

The outlook is positive for the Australian M&A market in 2021 after a Covid-induced crash in deal activity in 2020, according to Corrs Chambers Westgarth’s tenth M&A 2021 Outlook report.

Key trends the report identifies include a rapid escalation in M&A levels and an increase in creativity in pricing and speed in closing deals.

The study also highlights the critical need for support from target shareholders.

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Conditions appear to be set for a continued rise in equity prices as a result of the ongoing influx of capital into Australian equity markets. This makes it imperative that bidders employ strategies to move quickly on M&A transactions.

In our featured deal for the week, a major Australian retail bank (one of the oldest financial institutions in Queensland) snatches up a thriving direct bank to rejuvenate its retail operation.

Deal of the week: Bank of Queensland to acquire 100% of ME Bank for $1.325bn

Bank of Queensland announced has entered into an agreement to acquire 100% of Members Equity Bank (ME Bank) for a cash consideration of $1.325bn.

Bank of Queensland is a provider of a diverse range of retail banking, commercial banking, insurance, and wealth management services to individual and commercial clients.

ME Bank provides personal banking and business banking solutions.

The acquisition will be funded by an underwritten capital raising of $1.35bn.

Management believes the acquisition of ME Bank will be transformational and that the two businesses are strategically aligned, the acquirer said.

The deal will deliver material scale, broadly doubling the retail bank and providing geographic diversification. It will combine two strong complementary trusted brands, with shared customer-centric cultures and differentiated customer segments.

Further, management sees a clear pathway to a scaled, common, cloud based digital Retail bank technology platform.

“Highly complementary businesses”

The parties expect the synergies to reach $70m to $80m pre-tax by year three.

The two businesses will have pro forma total assets over $88bn, with total deposits of more than $56bn.

Based on ME Bank’s latest results, the acquisition price represents an implied acquisition multiple of 1.05x reported book value and 11.9x cash earnings.

Bank of Queensland’s Chairman, Patrick Allaway, commented:

“The combination of our highly complementary businesses brings together two organisations with a shared purpose and values generating greater value for customers, employees and shareholders. This is underpinned by the successful revitalisation of the bank since early 2020 with the team’s strong execution capabilities being reflected in our earnings progress to the half.”

Bank of Queensland is raising the funds via a $1bn underwritten 1 for 3.34 accelerated pro-rata non-renounceable entitlement offer and a $350m underwritten institutional placement.

An M&A blitz

Discussing the M&A 2021 Outlook, Corrs head of corporate, Sandy Mak, said:

“Despite a challenging year, our research indicates that 2021 could well see the volume and value of deals continue to grow. We are already witnessing this uptick in activity and while some industries and sectors are seeing a faster rebound than others, early indications are that the wider public M&A market will continue to strengthen over the coming months.”

“The frantic pace of work for M&A bankers and lawyers is ratcheting up notch,” said another Australian commentator. “Bankers and lawyer will have to work fast in 2021.”