M&A off to strong start, but challenges on the horizon

​Regulatory risk featured large in the mergers and acquisitions (M&A) market last year and is shaping up to be a big factor again this year, says Tim Tubman, who heads up Chapman Tripp’s corporate team.

He was commenting on the release of Chapman Tripp’s annual publication – New Zealand Mergers and Acquisitions – trends and insights 2018.

“We are seeing a pipeline of M&A activity fuelled by cashed-up strategic investors and private equity buyers with plenty of dry powder, all underpinned by generally favourable economic conditions,” Tubman said.

“2017 was a solid year and, after the traditional pre-election slow down, ended with a bang in the December quarter with momentum flowing through to this year."

Deal volumes last year were up 30% on 2016. But deal values were down, reflecting the lack of “mega deals” like Sistema and Nuplex, and the failure of Vero’s scheme of arrangement with Tower and HNA’s acquisition of UDC Finance to clear regulatory hurdles.

“This year will also be marked by regulatory uncertainty and change. In particular, the proposed legislative changes to the Overseas Investment Act by the new government will pose significant challenges for some transactions in 2018,” Tubman said. “OIO processing times are beginning to lengthen, after a period of improvement prior to the election.”

Buy-side M&A demand are giving vendors a good hand in negotiations: “Our data shows more seller-friendly deal terms in some areas. This may indicate a willingness from buyers to be more pragmatic in order to get deals across the line.”

Despite uncertainty in world markets, attributable to factors such as the progressive withdrawal of quantitative easing and an associated increase in interest rates in the world’s largest economies, overall the firm is predicting another good year for M&A in New Zealand.

“Hot sectors” to watch include financial services, consumer and technology. Forestry and media were also on the radar, although there would be some uncertainty for these industries.

“The forestry industry is facing upcoming changes to regulations which may prompt increased divestment, while traditional media businesses will continue to face competition and consolidation challenges in the face of concerns from the Commerce Commission.”

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