Four Years of Partnership - In Conversation with...Simon Price

Azure Capital joined Natixis CIB’s M&A Network in May 2019. To mark the fourth anniversary of being part of the network, M&A Pulse sat down with Simon Price, Partner & Deputy Chair, to discover what has changed for Azure during that time and what the future may hold in store.

How has Azure developed as part of Natixis CIB’s M&A Network, and how are you progressing in relation to your plan at the time of investment?

When Natixis CIB first invested in Azure, we had plans to grow all aspects of our business. At the time, we were delivering in the region of AUD 14-15 million of revenue and our objective was to increase that. We also had a plan to set up a permanent presence in Sydney, to facilitate our business activities more easily on the east coast.  We were aware of how successfully other boutiques had grown after receiving investment from Natixis CIB, so we wanted to double the size of our business, then go beyond.

Today, I’m pleased to say that we’re actually performing a little ahead of our plan.

Initially, as a result of Covid, and the fact that in M&A, things tend to have a fairly long lead time, we did fall a little behind schedule. But over the last 24 months, we’ve continued to invest and push ahead, and things have really accelerated.

We roughly doubled our revenues from FY19 to FY22, and FY23 should see a further increase. We have also doubled the business and approximately doubled our team numbers as well, going from 23 to 47, We’ve built a team of 13 professionals in Sydney, where we also have two partners now, Harrison Moore and Phil Prenc, on the ground driving that part of the business.

At the time of investment, we were also looking to further develop our performance in other sectors. Traditionally, we have been strong in metals, mining, oil and gas, and related areas of natural resources.  Since becoming part of the Natixis CIB network, we have done more work in infrastructure and renewables – and of course other areas too, but this is where we have seen the most significant traction.

The renewables practice has really given us a lift in Sydney over the last 18 to 24 months.

One thing that we set out to do with this partnership – and I think this is true for both sides – was to leverage the strengths of the group where possible. Today, we have frequent dialogues across sector teams, the financial sponsors teams, the global M&A network coordinated by Marc Vincent, coverage in Paris, Hong Kong and Sydney. We’ve found that the level of collaboration and trust we have built with our counterparts (and they with us) is really impressive. 

Looking at some transactions – where has being part of the network been accretive for Azure?

Being part of a global organization has allowed us to grow our reputation and win more of the kind of mandates that we've had over these last few years. Together with Natixis CIB, we’ve worked on 7 transactions that have closed, and many more mandates and pitches. To put that into perspective, we closed 15 deals in 2022, so 7 mandates over three years is quite meaningful.

Perhaps one of the deals that really highlights how our partnership has been accretive to both Azure and Natixis CIB, would be ENGIE ANZ’s partial sale of the Willogoleche Wind Farm and establishment of an investment platform to fund future growth. ENGIE  has been a longstanding client of Natixis CIB, and so in that regard, our partnership opened the door for Azure working with ENGIE and its partner Mitsui in Australia. Similarly, Azure’s expertise in-country, and our combined infrastructure and renewables expertise, positioned Natixis CIB and Azure as a key partner for ENGIE ANZ.

Building our credentials on that transaction led to a number of other renewables transactions. While we’ve always had the skills and knowledge, this really allowed us to develop a closeness to the sector and become one of the leading advisors in the renewable space.  We have now also worked with a series of high-quality clients like BlackRock, Banpu, Foresight, Elliott, Wircon, Vestas and others.

Whilst the flow of new clients from Natixis has been pleasing, we also have seen the opposite dynamic, where we introduced one of our clients to the network.  An example where leveraging the network allowed us to achieve a very strong outcome, was when we worked with our APAC cousins at Vermilion Partners to help Prospect Resources, an ASX-listed resources company focused on the exploration and development of battery and electrification related mining projects in Zimbabwe and the broader sub-Saharan African region, sell its 87% interest in the Arcadia Lithium Project.  Vermillion’s strong capabilities in China helped us find Zhejiang Huayou Cobalt Co., Limited – something that (during Covid) would have been difficult to achieve on our own.

As expected, activity has been strongest in resources and infrastructure, but we have had diversity too.  We worked with Natixis CIB to help Finasucre, a Belgian based producer of sugar and related products when they wanted to diversify their business into healthier food products and invest into a New Zealand company called Prolife.

So there has been a diverse cross section of transactions, and of course what you see get closed and announced is generally a fraction of what has been going on beneath the surface.

You mentioned the impact of Covid – and while I’m sure everyone has heard plenty about Covid in recent years, it undeniably had a big impact on business. Many businesses had to look at the world from a different perspective and adapt how they operated – are there any positive side effects that continue to work for you even as we are “back to normal”?

M&A is business that requires the development of strong relationships of trust.  So Covid was pretty difficult on our industry to start with.  But I would say that overall, it really brought to the forefront the opportunities of remote working and people being more used to working via video conference as opposed to having to travel and meet face to face. This made it much easier for a company from Perth to move into a role as a national player.

And although using video conferencing is not new, the technology got so much better and became more seamless through the Covid experience.

As an example – we try to operate our practice as a single unit, but even between Perth and Sydney, there’s a 2–3-hour time difference and remote working and use of video technologies has made that a lot easier to navigate. It’s also given us an expected edge working with clients from Europe. If a client is in Paris for example, there's a 7-hour time difference to Perth and a 10-hour time difference to Sydney, at this time of year. So first thing in the morning for a client in Paris, we can get a whole team on a call.  The Perth team is then online for a number more hours and then not long after it will go offline, the Sydney team becomes available and they get a whole day before Paris comes online again, so they can react to everything that’s happened on the ground here during the day.

What’s the outlook for Azure in the next 3-5 years?

Things have come a long way since joining network, and we've also got more visibility on how things are working in practice with the team in Sydney. We are currently working on our next strategic plan. We’ve reached the point where we have exceeded the expectations of our last plan, so we’re looking to elevate our sights for the next stage of development.

We’ll continue to grow our numbers on the East Coast of Australia and diversify our business there. We've reached critical mass with our team of 13 in Sydney, but we plan to bring that up into the 20’s, which will provide a lot more coverage and diversity.

While we’ve had great recognition and success for mid-market deals – we were very proud to be named Mergermarket’s 2022 mid-market adviser of the year – we are also looking to expand in to the upper-mid market and more regularly play in the larger end of the market.  

We also want to replicate the success we've had in renewables in other areas of infrastructure. Renewables is a high growth sector that we know really well – and we’re very happy with the performance we’ve achieved there. But we want to replicate the reputation we've built there in other infrastructure sectors, like waste management, digital, healthcare and transport, given the activity levels and growth expected in these areas.

In fact, our infrastructure practice has shown us the positives that come from having deep relationships with financial sponsors, and developing in areas where both we and Natixis CIB are strong. The next one these themes lead us to is private equity and the leveraged buyout market.  As with renewables, we are already doing this, but we can do it better and more frequently, working collaboratively with Natixis CIB.

We’ll continue to improve our profile in our other sectors as well. We're very active in natural resources where there is room to grow. We've also done a number of good deals in agriculture including forestry, which is a growth area because of the carbon market.  We also work in all kinds of industrial services and construction.

One of the areas we’re keen to build more collaboration with Natixis CIB going forward is with their Green & Sustainable Hub. Australia is a few years behind the developments in Europe when it comes to the build out of renewables, green or socially beneficial funding and so forth. But the signs of life are there – and it’s positive!

We look forward to working more with the Green & Sustainable Hub and letting our clients know that even if they don’t want to do a green tranche for their transaction, that the option is available, and the increased liquidity and optionality this can bring is a valuable proposition.  In time, it will become more routine as companies strive to meet decarbonization and transition targets.

Last but not least, we also continue to focus on recruitment. One thing that I think is very apparent when you look at the partners and other senior team members at Azure, and it’s something that we’re particularly proud of, is that many have come through the ranks.

We have a very strong reputation and presence in graduate recruiting and we want to continue to invest in our young people to develop the leaders of tomorrow.

Perhaps a weakness that we've suffered in the past, as a small boutique based in Western Australia, is that for those looking to build an international career, Perth is fairly isolated – it’s actually the most isolated capital city in the world. So, we have often been unable to satisfy some people’s desire to experience working elsewhere in the world.  Now that we’re in Sydney, and through our partnership with the Natixis M&A Network, that’s changing. Many of our people have taken up opportunities to move between Perth and Sydney and this is going to continue.

We are also offering opportunities for exchanges within the network. At the moment we have Joel from Natixis CIB in Hong Kong with us. Later this year we've got a team member going to Natixis Partners and one of their associates is going to join us.

Not only do our young people get fantastic and unique experiences through this, but we will benefit by keeping more of the knowledge we are building within the group when they return and foster better relationships across the network, which is another key objective.

Looking at the Macro environment, the ‘VUCA’ dynamics may have led many companies to postpone or drop M&A in 2022. Do you see any change in 2023? Can we expect higher deal volumes in Australian M&A?  

Can we expect higher deal volumes in 2023 – unfortunately I would say no.  At the start of 2022, Australia was still quite strong. That started to tail-off towards the end of the year and it is going to continue at least for the first half of 2023. We still have a tightening interest rate cycle. There have been ten rate rises already in this cycle, and the market expects to see another one or two, though it could be more.  Although the latest data shows these rises are having an effect, it generally takes time for the full impact to be seen on consumer behavior and things like real estate or other asset prices. We might not reach that point until the third quarter of this year.

Markets and M&A activity can be forward-looking, so if leading indicators show signs that contractionary forces are bottoming out around mid-year, that could be the turning point. But it’s pretty hard to say, it could take until the 4th quarter. What is clear is that today people feel like we've got a way to go before economic conditions stabilize. And while recession is not anticipated in Australia, it's certainly possible.  Of course, none of this is conducive to a strong M&A market.

Fortunately for Azure, our two biggest sectors are either less impacted by these dynamics or have their own tailwinds. For at least 3/4 of our business, we're not really feeling the effects of the volatility. Take natural resources for example. Cost inflation and higher costs of funding are impacting mining companies, but inflation also means that commodity prices are high.  The post Covid rebound and other drivers like electrification means demand in certain areas like, battery metals for electric vehicles, is so strong that price growth far outstrips cost inflation.  Similarly for renewables - without question, the funding cost of renewables are being pushed up. But investor appetite is so strong, as is the depth of the need to add renewable capacity to meet Australia’s energy transition. So we don't think economic forces like rising funding costs are enough to push this off course.

That said, it’s not true for all areas; large scale leverage buyouts are certainly impacted. The real estate sector is weak. Financial services are weak, and people are pretty nervous about discretionary or non-essential spending in areas like consumer products.

ESG is playing an increasing role in M&A globally - how is this permeating deals in Australia?

Without question, companies are much more aware now of how a transaction will impact their ESG performance. This is not a new concern, but it does see greater focus now.  From our perspective this is most apparent in asset selection. As a buyer, do I want to invest in certain areas?  In some areas its clearly ‘yes’ and in others, investors are not sure anymore.  Things change so quickly, and I think boards are now much more aware and more cautious.  It can be quite costly for a company to undergo an ‘ESG fail’ – whether financially, reputationally, or how it impacts the motivation of your workforce.  So if a deal has ESG risks or is in a sector or location that could generate backlash – boards are now asking themselves, how willing are they to invest long term capital there? 

We are also seeing a lot of interest in green assets - renewables for example and not just from traditional renewable investors.  Energy companies that still derive the bulk of their value from oil and gas are exploring building out their renewables portfolios. They are investing in forestry too.  These are multi-year ESG driven trends. Electrification is a great example too – we all know how significant the growth in electric vehicles will be, so why not invest in the commodities that supply this space rather than old world fossil fuels?  Some of the best performing ASX stocks in the 2022 did exactly this and it’s a space we are watching very closely.