Merger and acquisition activity expected to ramp up in 2021

Minter Ellison partner and head of the firm's corporate division Silvana Schenone. Photo / Supplied.

Corporate merger and acquisition activity will be strong this year after the pipeline was virtually closed off in March 2020 as the country went into its first pandemic lockdown.

That's the prediction of MinterEllisonRuddWatts' corporate finance team in its annual M&A report released today.

Silvana Schenone, a partner at the firm and head of its corporate finance team said almost every deal was put on hold or abandoned when the country was first put into lockdown last year.

But since then it had seen the number of deals build and a very busy period in the run-up to Christmas.

"All indications point to these comparatively high deal volumes continuing for the rest of this year."

Schenone said one of the trends driving this belief was the view that New Zealand was being seen as a haven for international investors.

Neil Millar, corporate partners and private equity expert at MinterEllison, said: "international corporates and private equity funds are very interested in New Zealand assets and are diverting resources to deals on our shores in favour of deals in their own back yards."

The influx of returning, cashed up New Zealanders was also driving a mini-boom in small business sales as they looked for places to put their money.

Schenone said the increased interest in New Zealand was also being matched by an increased supply of good quality assets.

"Many businesses that were pulled from the market during lockdown have traded well in the second half of 2020 and will likely come back to market. This will supplement those that were always targeting an exit in 2021."

MinsterEllison also forecast that investment bankers would now turn their minds to filling merger and acquisition pipelines after largely completing the emergency capital raisings of last year.

It also predicted there would be more distressed asset sales in the second half of the year as the economic reality hit some businesses.

International corporates were also expected to trim and sell off non-core New Zealand assets to shore up their position in their key jurisdictions.

Millar said he also expected acquisition and divestment activity from private equity funds with 74 New Zealand businesses held for three years or more - the typical investment cycle for these funds.

"Our domestic private equity clients are seeing the fruits of their largely conservative investment approach, with the majority of their investments weathering the storm in pretty good shape. These funds are cashed up and bullish, well aware that Covid-19 has likely created new bolt-on opportunities that perhaps did not exist 12 months ago," Millar added.

But they warned that not all conditions would be conducive to mergers and acquisition activity with an increased focus on due diligence expected - adding cost and slowing deals.