Commerce Commission prepares for M & A surge

Commerce Commission chair Mark Berry. Photo / Mark Mitchell.

The Commerce Commission is preparing for an inflow of merger applications this year as firms that survived the worst recession in 18 years move to strengthen their position as the economy gradually recovers.

Chairman Mark Berry told a competition law conference in Wellington this week that the regulator has already received three merger applications this year and has been told by major law firms that there are more to come.

"We have recently been advised of a number of merger applications in the pipeline - so we expect to see activity in this area pick up this year," Berry said in speech notes published on the regulator's website.

"So far, there have not been many failing firm transactions, perhaps partly because the New Zealand economy has not suffered a severe recession and has in fact started to show some promising signs of an early recovery."

Last year there were only 11 clearance applications compared to 26 in 2008, and Berry said the commission spent last year preparing for an expected upturn in mergers as the recession deepened by streamlining the authorisation process and its failing firm guidelines.

Some 37 per cent of New Zealand companies are looking to grow their business through acquisition in the coming three years, accounting firm Grant Thornton, up from 35 per cent a year earlier.

Head of lead advisory Martin Gray said businesses have been cutting costs over the past 18 months, and some of the larger will look to acquire or merge with weaker firms to "drive further efficiency, resume growth and enhance margins."

KPMG, one of the 'big four' accounting firms, anticipates finance companies to undergo a period of consolidation this year as the survivors from the sector collapse in 2008 subsume their smaller rivals in the face of rising costs and heavier regulations.

"We understand that a range of merger discussions are currently occurring across a number of entities in both the finance and savings sector," said the authors of its Financial Institutions Performance Survey - Non-banks Review of 2009.

The Commerce Commission's Berry said international experience also showed the recession could lead to "more instances of collusive behaviour," though it was too early to tell whether any New Zealand businesses had attempted to fix prices in an effort to shore up their profit margins.

Commerce Minister Simon Power is leading a crackdown on cartel behaviour in a pitch to make collusion a criminal activity, which would allow the judiciary to impose jail-time for illegal anti-competitive behaviour.

A Ministry of Economic Development discussion document proposed lifting individual financial penalties to a maximum

$5 million and introducing prison sentences with a maximum term of between five and seven years.

The regulator currently has 17 cartel cases either in litigation or under investigation, 10 of which are international cases, including its case against Air New Zealand and other airlines over price fixing.