The story of the first few weeks of 2016 has been one of stock market turmoil around the globe. So surely this has had a detrimental effect on corporate finance activity?
Well no. Actually things are still going fine across the board – and we envisage this continuing throughout 2016. In terms of mergers and acquisitions (M&A), activity is strong, especially in sectors experiencing consolidation such as the aged care industry. The positive local mood for M&A transactions is being matched around the world, as KPMG International’s 6-monthly Global M&A Predictor confirms.
In Australia, one cloud on an otherwise sunny skyline is in my own specialist area of tax. We are noticing increasing anxiety over the use of complex multi-national structures, such as hybrids, to facilitate global investment. Companies are treading warily, given the likely tax reforms that will unfold both in Australia and elsewhere as a result of the Organisation for Economic Co-operation and Development's (OECD’s) Base Erosion and Profit Shifting (BEPS) recommendations.
Concern over the growing differential in the Australian corporate tax rate compared to the majority of the developed world/OECD countries (with US the obvious exception) is also evident. While the domestic tax reform process seems currently in a state of uncertainty, we would still urge the government to try to find the wherewithal to make some inroads into our corporate tax rate. KPMG modelling for the Financial Services Council recently showed how a serious cut in the rate would lead to major economic benefits. It is not sufficiently understood how the benefits of company tax cuts flow more to employees than shareholders.
But, tax concerns aside, our expectation is that M&A activity will remain robust in 2016. Companies have ample cash reserves and their desire for growth – coupled with consistent demand for quality opportunities from private equity sponsors – means the outlook is sunny.
For a more detailed analysis of the current M&A outlook, read my update in the Newsroom.