Bumper year tipped for mergers and acquisitions

There were 127 deals in 2017 compared to 97 the previous year, while the value dropped from US$8.6 billion ($11.9b) to US$3.5b. Picture / Getty Images

New Zealand could see a bumper year for mergers and acquisitions this year after pent up demand is released following the election, according to Chapman Tripp.

Joshua Pringle, a partner at the law firm, predicted there could be a lot of activity given the number of cashed-up private equity firms and industry players looking to buy.

"There is a lot of pent-up demand after the election. I definitely see more optimism than 2017."

Chapman Tripp's annual M&A report which was released today shows the number of deals rose significantly last year, although the value was much lower.

There were 127 deals in 2017 compared to 97 the previous year, while the value dropped from US$8.6 billion ($11.9b) to US$3.5b.

The high value of deals in 2016 was driven by the sales of Sistema and Nuplex.

Pringle said New Zealand usually got two or three billion-dollar-plus deals in a year but last year there weren't any.

A number of big-end deals did not get over the line, including the proposed merger between Vodafone New Zealand and Sky TV, HNA's purchase of UDC Finance, Vero's scheme of arrangement with Tower and the merger between Fairfax and NZME, which were all knocked back by either the Commerce Commission or the Overseas Investment Office.

The merger between Fairfax and NZME, which owns the NZ Herald, is under appeal.

The report noted that the pace of merger and acquisition activity changed throughout last year, with a slow start followed by increased activity in the second quarter. It then slowed down against the lead up to the election but the year ended with a "flurry" of activity which had carried over to this year.

"There is significant momentum heading toward the end of the March quarter in New Zealand and, anecdotally at least, bankers, lawyers and other advisors have more on their plates than they did this time last year," the report said.

Joshua Pringle, partner at Chapman Tripp, says this year is shaping up to be a good one for mergers and acquisitions. Photo/Supplied.

Pringle said it had definitely been a strong start to the year and he continued to see a lot of activity in the mid-market space where the baby boomer generation were selling up businesses.

For those looking to sell there was more good news as it continued to be a sellers' market with multiple bidders putting the power in the hands in those wanting to cash up.

"The seller‑friendly market dynamic we saw in 2017 will continue (and perhaps
reach its apex), as demand for high-quality assets outstrips supply, debt remains readily accessible, and both trade and financial investors command sizeable war chests," the report noted.

The law firm picked financial services, media, forestry, consumer and technology sectors as ones to watch.

But it also warned of more regulatory intervention and that the Overseas Investment Office would remain a "persistent challenge".

"New Zealand is known for two things now - the Lord of the Rings and the OIO [Overseas Investment Office]," Pringle said.

Before the election the OIO process had been improving, he said. However, a shift in government had bought a change in attitudes toward overseas investment.

Since the new Government's proposed changes to overseas investment were released on December 15 there had been only two decisions relating to sensitive land.

"Normally you would expect more than that."

The report noted that processing times would likely lengthen, at least in the short term, as the OIO's resources were directed towards the new government's tougher residential land requirements.

"Vendors looking for a quick sale may favour domestic bids as a result," it noted.