Is the tide changing for M&A activity?

by NZ Lawyer29 Apr 2015
Although 2014 had been a reasonable but overall unremarkable year for M&A transactions, the tide may be changing.

In Anderson Lloyd partner Chris Bargery’s view, while there were a few significant deals last year, such as Beijing Capital’s acquisition of Transpacific Waste Management, and Carter Holt Harvey's sale of its pulp, paper and packaging business to Oji Holdings and Innovation Network Corporation of Japan, the majority of the activity was focused on the mid-market with deal values around $20m to $100m.

“I think there is an expectation, and this is not just for lawyers but bankers, etc around town, that 2015 should be better,” Bargery said.

“Part of that I think is slight expectations that the capital market might slow down slightly or that you might have for example investment bankers, who have been running around doing IPOs for the last couple of years, might re-focus on M&A a bit more.

“You’ve got a lot of well-capitalised, cashed-up companies and a lot of banks very keen to lend, so assuming valuations, etc and assets come onto the block, you would have thought that there’s a good headwind for M&A.”

Overall, Russell McVeagh partner Dan Jones anticipated a good year for firms.

“Last year had some very busy areas and some areas which were down on usual activity levels,” he said.
“I think you’re probably looking at a little bit of a smoothing effect this year with some of those areas that were really busy last year perhaps falling back a little bit, but on the whole the sense is that everyone is busier,” he said.
In the capital markets space, with the last of the mixed ownership models taken public at the beginning of 2014, the rest of the year’s IPOs were generally focused on smaller companies coming to market.
The question now is; what will the rest of this year hold?
“There are a number of listings in the pipeline at the moment. Whether they get there or not, who knows?” Bargery said.
“I still think there is a reasonable amount of confidence for the first half of this year.

“The question then is what does the second half of the year like? I don’t think anyone can really predict that with any accuracy, but I still think there’s a reasonable amount of strong sentiment.”

With the Financial Markets Conduct Act taking effect in December last year, and the first issuances and licences coming through the system, businesses are beginning to come to grips with the effect that the changes will have.
“It’s a very significant reform and I think that there will be a period where, and we’ve already struck it ourselves, everyone's working through the more detailed effect of those changes,” Jones said.
In the banking and finance space, firms are reporting that lenders are willing and able engage in new projects.

“There hasn’t been a huge amount of new money or big deals, but there’s plenty of capacity within the banks to fund them so there’s certainly plenty of funding available to do deals on the M&A side and on the PPP side,” Bargery said.
According to Lowndes managing partner Mark Lowndes, clients are now also more prepared to borrow. “The banks have had money to lend for a while but I think the borrowers are more inclined to borrow it of late,” he observed.