Still quiet on the NZ M&A front

First New Zealand Capital chief executive Scott St John. Photo / Supplied

The recent acquisition of Shell's downstream assets by infrastructure investor Infratil and the New Zealand Superannuation Fund was a landmark deal.

But investment bankers are aren't expecting to see many of its type this year.

First New Zealand Capital chief executive Scott St John said companies were beginning to put resources into looking around the market at potential growth options but weren't ready to undertake a merger or acquisition yet. "We are seeing companies that were very focused on balance sheets last year evolving and thinking, to be more outwardly focused."

St John said he expected a modest level of M&A this year.

The Shell deal showed it was good time for New Zealand to buy back some of its businesses from foreign owners. "I don't think we should expect a whole lot of northern hemisphere interest down here - , if anything it is the other way around."

One company that had made an early venture into the M&A space was Auckland Airport's through its acquisition of a 24.55 per cent stake of Cairns and Mackay airports in Queensland, Australia for A$132.8 million (approximately NZ$166.7 million).

"I think there is some more potential for that to happen."

St John said good ideas would always attract financial support.

"If existing companies have a good idea, shareholders will support it but it's something you have to earn." That was why he believed some of the initial public offerings had struggled to get off the ground. The only IPO to succeed this year has been the $10 million float of Geoff Ross' candle company Ecoya.

But the most likely M&A deals were expected to come in the form of private equity buyers forced to sell out because of high debt levels like the much-talked of Yellow Pages Group which was the biggest leveraged buy-out ever to take place in New Zealand.

"We may see some private equity exits through trade sale or public floats."

Martin Wight, head of Macquarie Capital Advisers said the tighter access to capital meant it was much harder for M&A deals to go ahead. "Debt is still hard to access at good prices and terms, which makes it more difficult to undertake mergers and acquisitions. However the world has improved dramatically"

Wight said a number of companies which had raised money last year were now sitting with strong balance sheets. "We are picking a return to M&A. Timing is the $64 million question."

Wight said the general vibe was that while equity markets had recovered, they were still volatile. Macquarie had seen an increase in inquiries from companies about M&A.

He said companies were cautious about the speed of the recovery and making sure deals were done on a more prudent basis. "We are not back to pre GFC times yet."

While access to debt had improved, the cost of funding had increased as well. "Ultimately it's not going to stop corporates doing M&A but at the moment people are understandably cautious.