Uncertainty to create rough M&A seas over the next year

by Sol Dolor03 Jul 2017
The global mergers and acquisitions market is echoing headwinds created by geopolitics, a new report from DLA Piper recently released in New Zealand reveals.

The “DLA Piper Global M&A Intelligence Report,” which was released by the firm for the first time in New Zealand, found by looking at about 1,000 deals worldwide in 2016 that events including the Brexit, the UK election, and China’s crackdown on outbound investment is weighing down on the world’s deals market.

“We would see less than plain sailing over the next year or two until some of that uncertainty has dissipated,” said DLA Piper partner Bob Bishop.

The firm’s international corporate group head and global M&A practice co-chair also warned that uncertainty coupled with a price bubble could result in an asset-price correction soon.

While geopolitical events have impacted the M&A market, certain trends have endured. One of these is the rise of auctions among all sellers in all regions and particularly for private equity sellers.

“The popularity of auctions is spreading both in terms of geography and deal size,” Bishop said, adding that auctions are now no longer only popular for larger deals but for smaller deals as well.

“Since our first year, our report has demonstrated that auctions drive better deal terms for sellers,” he said.

Bishop said that good assets are being sold with “good tension” and poor assets are “really struggling.”

Reuben Woods, an M&A partner in DLA Piper’s Auckland office, said that another increasing trend is the use of the locked-box approach. The approach, which started in the UK and which
shifts the economic risk to the buyer, will start being utilised in New Zealand, he said.

“The difference is with locked box, everyone is bidding on the same terms. With completion adjustment mechanisms, it can end up with very different prices depending on the pricing adjustment mechanism.  Locked box allows sellers to better compare competing bids,” Woods said. “We are seeing a move away from completion accounts to the locked box mechanism. It had a flare of popularity in New Zealand four to five years ago, but doesn't seem to have gained mainstream appeal. But I think it is coming back given that it is now mainstream in the UK and Europe.”

Woods also said that New Zealand “may have been a little ahead of the curve” when it comes to warranty and indemnity insurance, which is spreading from larger deals to other markets. Bishop and Woods also said that schemes of arrangement are experiencing a resurgence in the global M&A market.

Robert Bishop

Reuben Woods

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