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Just enough work to go around

By Nick Stride

Friday 2nd May 2003

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The first quarter of this year was not a vintage one for corporate financiers but the picture is not as dark as it looks.

According to Thomson Financial, announced and completed merger and acquisition activity for the March quarter was worth $381 million. Although this beat the dismal $278 million in the same quarter of 2002 it was a world away from the billion-plus 1999 and 2001 years.

After two bumper quarters last year ­ $3.2 billion in the second and $4.4 billion in the third ­ there's optimism enough deals are around to keep everybody working, for now.

Last year's giant deal ­ the $2.7 billion acquisition of UnitedNetworks by Vector, Powerco, and Hawke's Bay Network ­ was hailed by some in the industry as "the deal that saved New Zealand investment banking for another year."

Even though the lion's share of the fees went to one bank, ABN Amro, the thinking is that it's deals of that size popping out of the woodwork that keep the international banks interested.

The relatively depressed state of sharemarkets has meant two of the biggest corporate finance moves by value have been buybacks.

Trustpower's, valued at $152 million, has resulted in a change in corporate control, with the Alliant/Infratil camp increasing its holding to 59.1% while Australian Gas Light sold its 20% stake. Sky City saw its own shares as a bargain, paying $49 million to soak some up.

Some reasonably chunky acquisitions have also been done. ING's purchase of Dress-Smart's Auckland factory outlet centre was worth $33 million; Australia's Alesco Corporation bought kitchen fittings maker Robinson Industries from AMP Henderson Capital and Direct Capital for $31 million and paid $46 million for Biolab Limited; Steel & Tube Holdings paid $14 million for the assets of Hurricane Wire Products; and Southern Capital bought Hirequip from Owen's Group for $10.4 million.

Amid uncertainty about the direction of the world's major economies, the $2 billion Promina float looks likely to keep the big investment banking departments busy for the first half of the year. Practically every bank with distribution capability is involved.

In the second half they can look forward to a wave of floats banking up while the political and economic climate resolves itself. These include Jade Software, Virgin Blue, Tru Test, Turners & Growers, Freightways and Hirequip.

For big-ticket merger and acquisition activity the picture is mixed. The higher value of the New Zealand dollar makes local acquisitions more expensive, especially for US dollar buyers. And the number of large listed companies is shrinking every year.

On the other hand New Zealand looks like a good safe place to put your money.

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