Another bumper year beckons for local mergers and acquisitions

This year's M&A activity was boosted by the sale of Vodafone NZ to Brookfield and Infratil. Photo / Getty Images

Next year is shaping up to be another strong one for foreign investment in New Zealand, law firm Simpson Grierson says.

Global merger and acquisition (M&A) activity has continued to rise, defying expectations, reflecting the need of multinationals to keep searching for market strength and the requirement of private capital to find a productive home, the firm said a report.

Geopolitical instability was prompting caution but also creating significant opportunities, it said.

More than US$4 billion ($6.4b) in New Zealand deals funded by inbound investment were announced in the first half of this year, slightly down from the second half of 2018 (US$4.3b) but ahead of historical half-year values.

Inbound deals accounted for 96 per cent of deal value in the first half, compared to 94 per cent in the 2018 full year.

The proportion of inbound to domestic deals remaining stable at about 55 per cent.

The Brookfield-Infratil acquisition of Vodafone New Zealand for US$2.25b played a significant part in the first half 2019 deal values.

Simpson Grierson said first half results showed that the New Zealand M&A market tracked global trends.

"While the overall volume of deals decreased in this period, against the global factors at play, we believe offshore investment into New Zealand productive assets will remain strong."

New Zealand's consumer space — including food related businesses and retail operators — had seen a noticeable uptick in foreign interest over the half.

TMT (technology, media and telecommunications) deals had also been a dominant force in the New Zealand M&A market, reflecting global trends, it said.

"New Zealand can look forward to more inbound investment in 2020 and beyond, as the market continues to provide good opportunities for global capital, while delivering on the returns and market conditions offshore investors are searching for," it said.

Simpson Grierson corporate partner, Andrew Matthews, said the findings painted an "overwhelmingly positive" view of offshore demand for New Zealand assets.

Seventy-seven per cent of survey respondents indicated an intention to re-invest in New Zealand over the next three years and 86 per cent expect an increase in our overall M&A activity through 2020, Matthews said.

"The results clearly show that New Zealand continues to be an attractive option for global capital, despite our relatively small size, due to the availability of excellent in-market opportunities - particularly in the consumer and technology, media and telecommunications sectors."

Respondents identified domestic growth opportunities, sophisticated local consumer bases, and good potential for scaling up and deploying offshore as reasons why New Zealand assets stand out on the global stage.

"Relative to other nations, New Zealand represents an attractive, stable investment option - with solid international recognition and lack of corruption - for investors seeking to expand into the Asia Pacific region," he said.

"Based on the feedback we received, medium-term offshore investor interest in New Zealand remains positive and may only grow stronger as global capital searches for and continues to find a home here — primarily coming from Asia Pacific investors but also from Europe and the United States."

Commenting on New Zealand's overseas investment regime, the report said: "While it wasn't a deterrent to doing deals for most, the regime still meant some respondents faced uncertain timelines and process requirements."

The survey covered 80 foreign investors with recent experience of investment in New Zealand. Respondents were evenly split between Asia Pacific, North America, and Europe.