Acquisitions activity heating up

Merger and acquisition activity involving New Zealand businesses is heating up and the sharemarket's retreat seems to be making listed companies more attractive to prospective buyers.

Brynn Gilbertson of Bell Gully, the leading legal adviser on merger and acquisitions, said recent indicators suggested activity was accelerating.

"If anything, we've seen the market become more vibrant. Our team is very busy," he said.

"We've seen a steady flow of announcements, certainly of assets up for sale or for strategic review."

Assets and businesses for sale or being reviewed included Carter Holt forests, Healtheries, Hansells, Fulton Hogan's Envirowaste business, Hirequip and Telecom's Yellow Pages business.

It might take a few months before those processes worked their way through to see if the real strength of the market resulted in completed transactions at some of the recent values they had been completed at, he said.

Bell Gully advised on 30 transactions worth $1.88 billion in the first half of the year, a significant chunk of the $5.4 billion worth Thomson Financial estimated had been completed over the period.

Meanwhile, some market watchers say the sharemarket's more than 8 per cent retreat from its early April highs means New Zealand listed companies may represent better value for prospective buyers in takeover situations.

First NZ Capital research manager Barry Lindsay said the local market was now trading at lower multiples after having traded consistently at a premium to those elsewhere around the globe, where earnings outlooks were actually brighter.

With firms' shares trading at lower prices - and little prospect of them picking up until next year when the market would likely begin pricing in a rosier earnings outlook as the result of a more favourable interest rate and a lower exchange rate - the market may present attractive acquisition prospects, he said.

Andrew Schmidt, chief executive of Hanover Group, which has set up an investment banking team to advise on merger and acquisitions, also said the weakening market could increase potential for activity.

But Hanover Group was looking to start off in merger and acquisitions in a "fairly small way".

The company would bide its time to some extent and monitor the outcome of recent private equity deals, which would set the tone for future activity.

"A couple of them have been very highly leveraged and there could be some hurt from these."

However, Goldman Sachs JBWere head of private equity Paul Chrystall said it was difficult to judge whether recent private equity deals were being done at excessive prices, as suggested by outgoing Fletcher Building chief executive Ralph Waters last week.

"You have to look at whether a price is right or not on a case-by-case basis. Whether a price paid by anybody is high is not something any of us know until we see the final outcome."

Nevertheless, he acknowledged that there was certainly potential for private equity firms to over-extend themselves at present.

"It is a time to be extremely cautious. In heady times people will tend to overpay."

Bell Gully's Gilbertson suggested it was the high prices commanded in recent asset sales that continued to drive activity.

"There certainly seems to be a lot of competition for those assets and while you've got that competitive tension, that should result in full value being paid for those businesses.

"That's delivering value for vendors and making other owners think about the ownership of their assets."

Although rising interest rates may make things a little more difficult for highly leveraged transactions, Goldman Sachs' Chrystall said there were few reasons why the current private equity activity should slow.

"It's supported by a huge amount of savings coming out of Australia. "It's probably becoming a permanent aspect of the landscape."