Tuesday 26th February 2019
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New Zealand merger and acquisition activity this year is expected to come off its recent peak as tightening credit conditions combine with growing uncertainty over the global economy, law firm Chapman Tripp says.
The country joined in the flurry of M&A activity last year with 135 deals worth $8.21 billion, up from 119 transactions valued at $3.5 billion in 2017, as cheap finance and a benign economy encouraged cashed-up buyers to pursue deals, the law firm's 2019 M&A trends and insights report shows.
However, the shift in the global outlook with central banks reluctant to raise interest rates, Britain struggling with its withdrawal from the European Union, and a Chinese slowdown may sap the desire to make large acquisitions, says Chapman Tripp partner Josh Pringle.
Tightening credit conditions are adding to the negative sentiment, including the Reserve Bank's proposals to require higher capital backing for the banking sector. The capital gains tax mooted by the Michael Cullen-led Tax Working Group is another factor.
"A bit of that uncertainty combined with the potential consequences if those reforms are brought in, we think that'll weigh on activity and we do foresee something of a slowdown this year," Pringle told BusinessDesk.
"We've had a good run of things since the GFC, based maybe on a bit of quantitative easing and a few other helping hands to activity, and it does seem like we're entering a stage where things will be a bit more uncertain generally - economically, politically and security-wise."
Chapman Tripp's sister report on capital markets released last week predicted an increasing number of initial public offerings over the coming years as the NZX beds in new rules and structures to revive investor appetite to use the local market.
Still, Pringle anticipates M&A activity will see more companies leave the NZX this year than join it. Trade Me and Methven are both poised to depart if takeover deals go ahead. Restaurant Brands New Zealand is also under a partial offer.
He doesn't see pent-up demand among New Zealand corporates to pursue major M&A, with most deals in the $75-200 million range.
And activity just yesterday shows Kiwi firms are on both sides of potential transactions. ASX-listed Straker Translations yesterday announced it bought Spanish translation firm Com Translations for 450,000 euro upfront, plus potential earn-outs during the next two years.
Separately, ASX-listed non-bank auto lender Money3 bought Kiwi auto-lender Go Car Finance for $16 million upfront in cash and shares, and potential earn-outs of a further $8 million. Go Car has a $50 million loan book.
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