Top law firm MinsterEllisonRuddWatts says M&A activity in New Zealand rose in the second half of 2018 and it expects that activity to continue to surge through this calendar year.
But it also warns that there could be some buyer remorse later in 2019 for buyers who have stretched their ambitions a little too far.
In its report on M&A, the firm says cashed-up investors continue to bolster the market as they seek top quality assets. As competition increases for the right businesses, the firm predicts a sellers’ market.
"There are numerous, high quality opportunities currently being brought to market with seller friendly terms available for the right acquisitions. Looking at these two trends, we’re expecting more high quality New Zealand businesses to be brought to market in the year ahead," Partner and Head of the firm’s corporate division, Silvana Schenone says.
The report points to the sustained interest from overseas investors, in spite of the commentary following 2017’s general election and the coalition Government’s desire to ensure Kiwi ownership of the country’s assets, and adjustments via the Overseas Investment Amendment Act.
"While the Overseas Investment Office’s activity in 2018 was aligned with the Government’s view, New Zealand’s investment profile remained in rude health," says Ms Schenone.
"We are seeing interest from numerous overseas corporates and private equity funds - particularly from Australia, UK and the US. Based on the deals that are active at the moment, we predict this will continue long into 2019."
But ...a warning
The level of activity across key sectors, seller friendly terms and high pricing begs the question: are we at the top of the market?
Corporate Partner, Neil Millar warns, however, that: "The heat in the market could be short lived, with some buyer remorse expected later in 2019 for buyers who have stretched their terms and their investment dollars."
This could lead to a cooling in the market in the second half of 2019.
"While deals will still get done, buyers may start to demand more balanced terms which could lead to fewer assets being brought to market," says Mr Millar.
Pressure on public markets will continue this year, with criticism levelled at the NZX and companies looking at alternative ways to raise money efficiently.
"The numbers of new companies listing on the NZX is in decline, and the impact of its revised listing rules is yet to be seen. We expect to see more companies being taken private, likely through schemes of arrangements. There is an impact in the capital markets’ activity with less IPOs, but still substantial capital raising activity," says Ms Schenone.