The "Goldilocks economy" - not too hot, not too cold - may be "just right" for capital markets activity.
This publication provides a snapshot of New Zealand's M&A market, exploring the key themes that we expect to characterise deal activity in 2015.
Business and consumer confidence is high relative to historical norms, interest rates are low and the banks are increasingly willing to lend. Already that is translating into an increased corporate appetite for M&A transactions – and we expect this trend to continue.
Blockbuster deals, approaching the $1 billion threshold, will likely remain the preserve of offshore purchasers. But we expect domestic companies to pursue strategic acquisitions, often involving vendors dealing with generational transition, and New Zealand private equity firms to focus on investments in the up to $100 million market.
Although New Zealand’s overseas investment screening regime is the seventh most restrictive in the OECD, interest remains high. At no stage in the 13 months to the end of January did the Overseas Investment Office (OIO) have fewer than 60 consent applications in progress and at peak – in October 2014 – it had 73. These volumes are challenging the OIO’s capacity with the result that it is not meeting its processing targets.
Some of the pressure would be eased if NZX listed companies with no more than 49% total foreign ownership or control (and no foreign shareholder with more than 25%) were treated as New Zealand companies for the purposes of the Overseas Investment Act. This has been on the Government’s capital markets Business Growth Agenda for years.
Other factors which we expect will stimulate M&A activity this year and in coming years include:
- increased activity by iwi corporations (we expect they will continue to focus on the primary industries and infrastructure assets over the short term but that, as their wealth increases, they will play an increasingly important role in the domestic M&A market)
- return of the Australian private equity investor (in the more constrained environment post GFC, the Australian presence has been subdued but there is some evidence that they are beginning to at least kick the tyres on New Zealand investment opportunities), and
- increased public market M&A activity on the back of a more supportive regulatory framework governing company led schemes of arrangement, rather than takeovers. The Takeovers Panel now accepts that schemes are a legitimate transaction structure, even where acquisition could be effected through a takeover offer under the Takeovers Code.