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Goldman Sachs sees buyer interest in Australia as economy diversifies

by April 19, 2017 General

Australian companies are increasingly attracting potential acquirers as the economy diversifies and North American buyers are drawn to invest in sectors such as infrastructure, according to Goldman Sachs Group Inc.’s local head.

Interest in the Australian market, particularly from the US and Canada, is rising given the level of transparency relative to other parts of Asia Pacific, said Simon Rothery, chief executive officer for Australia and New Zealand.

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Goldman Sachs is seeking to double to $5 billion its spending on principal investments in the country, he said. The dealmaking activity comes as Australia’s economy becomes less correlated with the commodities industry, according to Rothery.

“We have witnessed significant investment in sectors like health care, education and technology services,” Rothery said in an April 6 interview at the bank’s office in Sydney.

“Cross-border activity has remained consistent with a continued high level of inbound investment from North American acquirers, who see significant long-term opportunities in Australia.”

Australia’s economy, which last had a recession in 1991, is close to seizing the global crown for the longest economic growth streak as the central bank’s record-low interest rates help steer the country from mining investment back toward services.

Basic materials and energy targets accounted for only 6.8 per cent of acquisitions in Australia last year, the lowest level in at least a decade, compared to 40 per cent in 2011, according to data compiled by Bloomberg.

Australian companies announced $76.1 billion of cross-border mergers and acquisitions last year, with the largest proportion involving US buyers, according to the Bloomberg-compiled data. Goldman Sachs ranked fourth among advisers on such deals with a 29.6 per cent market share, behind Macquarie Group, local boutique Gresham Partners and Morgan Stanley. That’s up up from 10th place in 2015, the data shows.

The biggest acquisitions in Australia are now targeting industrial and utilities companies. Canadian pension funds have scoured the country for stable, long-term returns in infrastructure as Australian states sell off assets to fund construction of new roads, railways and hospitals.

Caisse de Depot et Placement du Quebec was part of a group that agreed in 2015 to buy an electricity network in New South Wales, Australia’s most-populous state, for about $10.3 billion.

Canadian funds including Borealis Infrastructure Management and Brookfield Asset Management have also joined deals for the Port of Melbourne, the country’s largest container terminal, and logistics operator Asciano.

“Over the past five years, the Australian market has become less correlated to the commodities sector,” Rothery said.

“The interest in Australia from North America, and particularly Canada, is strong.”

Consumer and healthcare assets in Australia have also been attracting takeover interest.

China’s Luye Group, Jangho Group and state-owned China Resources Holdings have acquired assets including private hospitals, an eye-clinic chain and a cancer therapy provider as they seek medical know-how they can take back to the world’s second-biggest economy.

US underwear maker Hanesbrands worked with Goldman Sachs on its purchase of Australia’s Pacific Brands last year for about $800 million including debt. The investment bank also advised Melbourne-based vitamin brand Swisse Wellness Group Pty on its $1.39 billion sale to China’s Biostime International Holdings, announced in 2015, data compiled by Bloomberg show.

Goldman’s investments in the country include Atira, a student accommodation joint venture with Blue Sky Alternative Investments that aims to develop and operate a $1.5 billion portfolio of as many as 10,000 beds. Goldman Sachs also joined a funding round announced in February for Singapore data centre developer AirTrunk, which plans to use the proceeds on projects in Sydney and Melbourne.