Cashed-up buyers to drive strong M&A in 2017, says top firm

by Sol Dolor10 Mar 2017
The M&A space will be a sellers’ market in 2017 as cashed-up investors and good quality New Zealand assets are expected to drive a healthy year in deals, a top firm forecasts.

“There has been a tremendous amount of capital raised by investors both domestically and offshore that needs to find a home,” said Tim Tubman, Chapman Tripp’s corporate team head in Auckland.

According to the firm’s New Zealand Mergers and Acquisitions: Trends and Insights report for 2017, private equity firms in New Zealand, Australia, and worldwide are sitting on massive pools of committed capital which globally stand at US$800bn, the highest level since 2008. Fundraising in the country last year was at its largest since 2005, with more than $1bn in new committed capital. The trend is also evident in Australia, where private equity and venture capital raised about A$2.74bn last year, Chapman Tripp said.

In addition to institutional investors, corporates with strong balance sheets are also tipped to contribute to a strong M&A year as valued assets abound. The availability of debt finance, a weaker NZ dollar, continued inbound investment including from China, and the diversified Māori economy will also play a role in the M&A space this year.

Chapman Tripp sees the improved Overseas Investment Act consent process resulting in less competitive advantage for domestic buyers in contested transactions. It also expects tighter currency control in China, as well as the general diversification of Chinese investments into sectors including tourism, financial services, and value-added food and nutraceuticals, making NZ investments more attractive to outside investors.

Meanwhile, Te Puni Kokiri, the Ministry of Māori Development, estimates Māori collectives hold more than $12bn of assets. Iwi is currently looking to diversify from assets in the property and primary industries as Māori collectives mature, the firm forecast.

Nonetheless, the year is not without its headwinds, and buyers are looking for sound investments, Tubman said.

“We don’t expect investors to buy for the sake of buying, nor bid assets up to unrealistic levels, as occurred prior to the global financial crisis,” he said.

Though optimistic on M&A for the year despite heightened global uncertainty, the firm is also predicting a slowdown in activity prior to the general election in September.

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