Lawyers confident new Government's business-friendly approach will boost deal flow, says Elizabeth Broomhall

The election of the conservative Liberal-National Coalition Government in Australia has raised hopes among the country's struggling law firms that the ending of electoral uncertainty and a raft of business-friendly policies will combine to reverse a worrying decline in M&A levels.

The 7 September poll and the subsequent swearing in of Prime Minister Tony Abbott following six years of Labour rule has been welcomed by senior business lawyers, who have been fighting to rein in costs because of the impact of slowing economic growth on deal activity.

Among the Government's main priorities are plans to scrap a controversial carbon tax on Australia's largest polluters and abolish the Minerals Resource Rent Tax or 'mining tax'. It has also pledged to boost spending on infrastructure and support foreign investment into the country.

Senior lawyers believe the policies will have a positive impact on deal flow, particularly in the mining, resources, agriculture and infrastructure sectors. Paul Schroder, a Sydney-based M&A partner at King & Wood Mallesons, said: "The resources sector is obviously under a lot of pressure, and abolishing the carbon tax regime will help certain resources businesses. 

"Further, the premise of the coalition is to be more open to foreign investment, which is important because expansion requires capital. This could be especially good for agricultural businesses, which should be active in deal making and where there is a desperate need for capital. There is an expectation that there will be great improvement here."

Minter Ellison's head of infrastructure in Australia, Brisbane-based Andrew Rentoul, predicted the infrastructure sector would also welcome the new leadership in view of the Government's investment plans coupled with an appetite for alternative project funding. "The new Government has typically bound itself to return the budget to surplus, but importantly has not imposed a deadline on itself to do that, and therefore has left itself some room to invest in the meantime rather than just to play down debt," he said. 

"The other interesting thing that is positive for the infrastructure sector and for the alternative asset sector is that they're very keen on promoting new funding models. One of the ideas that they had was the creation of a domestic bond market with the potential for tax advantaged infrastructure bonds."

While Australian law firms have been making a major impact on the international stage, courtesy of a wave of mergers and alliances with UK-based firms, the local legal market has been depressed, forcing firms to reduce headcount and take other cost-cutting measures.

In July Legal Week reported that DLA Piper, Allens and Clayton Utz were among several major players in Australia downsizing in Sydney and cutting back lawyer numbers as the slump in work volumes continued to put pressure on costs.

Figures collated by Clayton Utz show there were just nine domestic M&A deals with a value of more than A$50m (£31m) in the first half of 2013, compared to 22 during the same period in 2012. A recently published report on public M&A by Herbert Smith Freehills (HSF) highlighted a "significant readjustment" in the market characterised by slowing activity and falling deal success rates. 

The HSF report added that the uncertainty was particularly noticeable in the usually robust energy and resources market where deal value was significantly down. The report said the number of bids launched in the 2013 financial year in the resources sector by acquirers from China and Hong Kong had decreased significantly from the same period in 2012, falling from 30% of the total activity in that sector to just 15%. 

However, the report added that there were signs of confidence returning to the market in the current financial year. The falling Australian dollar relative to the US dollar is one factor that has fuelled predictions of an upturn in deal activity.

David Perks, a corporate partner at Gadens, said he believed the election itself would have a direct impact on dealflow by ending the period of uncertainty in the lead up to the poll. "I think the coalition will bring a degree of quality, certainty and maturity that was perhaps lacking under the previous Government," he said. "And, of course, whenever you've got a change of Government in the offing it tends to slow things down, so just to have the election out of the way is a good thing."

Simon Reed, a Perth-based corporate partner at HSF, added that businesses and investors needed a consistent policy message for confidence and positive sentiment to return. "Government policy is a factor but not a driving factor in certain corporate activity," he said. 

"What I believe the markets and market participants are looking for from Government is stability, consistency of message and… reduced interference. Certainly if that can be delivered by the incoming Government then it sets a good platform for opportunity."