Opportunity knocks for those willing to step forward

John Moore, head of equity and capital markers at Craigs Investment Partners. Photo / Supplied

Merger and acquisition activity took a hit during the global financial crisis, but conditions appear ripe for a resurgence. Balance sheets in general are in good shape and banks are keen to lend to quality borrowers. Should companies opt to go it alone, investor appetite for corporate debt is strong.

John Moore, head of equity and capital markets at Craig's Investment Partners, is optimistic about the future of New Zealand's capital markets. "There have not been many opportunities but there are probably more opportunities looking out over the next two to three years than there have been for some time," he says.

On the merger and acquisition front, activity cuts both ways - NZ companies have bought offshore firms and foreign companies have bought local ones.

M&A deals are making a comeback but are still a far cry from their heyday in 2007, locally and internationally. Based on the Thomson Reuters annual M&A league tables, completed deals here were worth US$11 billion in 2007 while worldwide M&A deals reached an all time record of US$4.5 trillion.

In 2008, local deals started to taper off to US$6.3 billion, dropping sharply to US$2.1 billion in 2009. Wellington-based M&A specialist Cameron Partners estimates there have been around $5 billion of M&A deals involving New Zealand companies since the start of 2010.

Historically, most of our foreign direct investment has come from Australia, but Cameron Partners estimates more than $1 billion of the recent M&A activity has involved Asian investment into New Zealand.

It has not all been one-way traffic. Fletcher Building took over Australian pipe and building supplies company Crane Holdings for A$939 million ($1.25 billion) in April, comfortably funded through a mix of existing credit lines and share issues. There has been Agria's partial takeover of PGG Wrightson, with Chinese company New Hope and Ngai Tahu Holdings. NZ Farming Systems Uruguay, which was born from PGG Wrightson, is also in the throes of a takeover by Singapore's Olam International.

Tourism Holdings is the subject of a partial takeover offer from US investors, while on the other side, transport and logistics company Mainfreight bought European logistics provider Wim Bosman in April.

On the asset sales front, the post-receivership "wash-up" of South Canterbury Finance assets has gathered pace. Other less controversial asset sales are in the pipeline and likely to surface over the next two or three years, M&A sources say.

There is an air of anticipation in investment banking circles about the Government's stated intention to partially privatise some state assets, should it win the election. Some believe floats of state assets will reignite interest in the initial public offer (IPO) market, which has been quiet since around 2007.

The share market is buoyant with the NZX-50 index having risen about 5 per cent since January; the total value of stock traded rose 27 per cent to $6.6 billion during the first quarter. Companies raised $635 million in capital - $535 million (equity) and $100 million (debt). The NZX's total market capitalisation was $58.2 billion, up 5.9 per cent from last year.

Banks are happy to lend, but corporates, still smarting from the global financial crisis, the recession, and the Christchurch earthquakes, are reluctant to step up to the plate.

David McLean, who heads up Westpac Institutional Bank in New Zealand, says the bank is doing as much as it can to lend. "But what we have seen since the global financial crisis is a lot of cautious conservatism on behalf of borrowers - from large corporates right through to households - who are waiting to see how the economy is going to shape up and who are not spending."

Corporates, like individuals, have been "deleveraging", or paying down debt.

"That takes the form of just gradually reducing the drawn components of their facilities. They are deferring investment decisions and waiting to see how things pan out," McLean says.

"We would love to lend. Our shareholders want us to grow our balance sheet but corporates and our customers are just saying that they are not ready to take on a lot more debt at the moment."

From the investors' perspective, there is plenty of demand from individual investors and private equity parterships for new opportunities.