Six year first half high for mergers and acquisitions

SBS Bank's Finance Now business acquired the financial services arm of The Warehouse in the first half of this year. Photo/Supplied.

Merger and acquisition activity in New Zealand had its strongest first half this year in six years despite there being just one public listing on the sharemarket.

KPMG's M&A predictor shows deal volume was up 9 per cent in the six months to June 30, compared to the first half of 2016 with more than 70 merger and acquisition deals done.

Nick McKay, KPMG's merger and acquisitions director, said the level of activity was a reflection of New Zealand's strong economy combined with low interest rates, appetite from offshore trade buyers and private equity firms and a quiet public offer market.

New Zealand has had just one initial public offer (IPO) this year - Oceania Healthcare - and no others are expected this year.

The report noted the New Zealand IPO market remained quiet for a number of reasons including; under performance of certain recently listed companies, strong private equity activity providing a viable alternative to listing and institutional investors growing in size and needing larger minimum investment thresholds before buying into new listings.

McKay said it expected the merger and acquisition market to continue to be strong with New Zealand's economy remaining sound and offshore corporates strengthening their balance sheets.

"Globally, we have seen corporates continue to strengthen their balance sheets in response to new and ongoing global uncertainties – such as North Korean tensions, recent and upcoming elections in the US and Europe, timing of expected interest rate rises and Britain continuing with plans for Brexit."

"As a result, we have seen capacity for deal-making increase by a significant 21 per cent per cent globally. This is in contrast to a 2 per cent increase in capacity locally."

The global rise has occurred despite a slow-down in buying activity from the Chinese market due to the government's tightening of capital flows, with outbound deals valued from China falling by 40 per cent in the first half of this year.

The report points to a number of trends driving activity in certain sectors, including disruptive technology driving defensive mergers and acquisitions in the traditional media, financial services and retail space.

It has also seen businesses in highly competitive sectors such as utilities and telecommunication sectors acquire other businesses to diversify.

While fund raising activity 2016 had seen private equity players continue to buy into companies this year.

The KPMG report also points to emerging trends that are impacting the M&A market.

"For example, the engineering and construction sector has a strong pipeline of projects, yet is facing shortages of both labour and raw material supply," McKay said.

"This is leading international firms seeking entry into New Zealand to consider doing so inorganically … which is a new development for the sector, given that joint ventures and strategic alliances have historically been the more common approach."

McKay said a recent round of discussions with Australasian investors highlighted continued interest in healthcare, food and beverage and education but financial services and tourism were particularly topical.

Deals done in the first half of 2017
Food and Beverage sector
• Navis Capital's investment in Mainland Poultry
• Pioneer and Orien Capital's investment in Rockit Global
• Pacific Equity Partners backed Pattied Foods acquisition of Leader Foods
Telco and Media
• Vodafone New Zealand acquired a 70 per cent stake in BayCity Communications
Construction
• Downer EDI acquistion of Hawkins Construction
Healthcare
• Mercury Capital 50 per cent acquisition of Nirvana Health
• HealthCare of New Zealand acquisition of Geneva Healthcare
• Adamantem Capital stake in Heritage Lifecare
• Clanwilliam Group's acquisition of HealthLink
Financial Services
• AiA's acqusition of Sovereign Insurance
• TSB Bank acquisition of Fisher Funds with a private equity firm also taking a stake
• Turners acquistion of Autosure
• Gallagher Bassett acquisition of Symetri
• HNA Group's acqusition of UDC Finance
• Finance Now's acquisition of the financial services arm of The Warehouse.