Cashed up buyers with cheap funding likely to stoke M&A activity in 2017: Chapman Tripp

Thursday 2nd March 2017

New Zealand is likely to see more merger and acquisition activity this year as relatively cheap capital and private equity firms flush with funds stoke demand, says law firm Chapman Tripp.

The NZX doesn't have a huge pipeline of initial public offerings, although capital is readily available through secondary capital raisings and interest rates are still near multi-decade lows. However, Chapman Tripp partner Tim Tubman doesn't expect to see a return to the over-leveraged deals that occurred before the global financial crisis, with lenders pickier about what they'll and how much risk they'll take on.

"We're not seeing irrational exuberance, it's more rational exuberance - there's all this cash there but people are being sensible about it, they are looking at what makes sense," Tubman told BusinessDesk. "We are seeing rational, strong competition for good assets."

That M&A activity has already picked up in New Zealand, with full and partial takeover bids for Hellaby Holdings, Abano Healthcare, Airwork Holdings and TeamTalk, and possible mergers of Fairfax New Zealand and NZME, and Sky Network Television and Vodafone New Zealand which is up in the air after getting rejected by the Commerce Commission.

Chapman Tripp's Tubman says sectors that are likely to see activity include media and financial services, which are facing major structural changes as publishers and broadcasters try to find new revenue models and lenders adapt to tighter capital requirements demanded by regulators.

Other areas that will continue to attract bidders are in the still fragmented aged care sector, a building sector with a massive pipeline of work, and value-add food and beverage and health supplements businesses.

Tubb said the ultimate outcome will depend on what the sellers are trying to achieve, whether it's an exit plan, succession, or finding a partner to grow the business. Fletcher Building's acquisition of the Higgins Group quarry business last year was an example of an exit, while the sale of an 80 percent stake in Better Health Co was done to help the Lower Hutt-based supplement maker break into China, he said.

New Zealand's growing Maori economy and the increasingly established iwi corporate players will play a bigger role in M&A, which Tubb said will create new opportunities to align with Chinese investors.

"The synergy for me over time is that there's a natural alignment between Chinese investment horizon and iwi's" he said. "Particularly to get some alignment between iwi in New Zealand with some of the primary assets coupling with partners in China with some of that distribution - you can see that being quite powerful and with a really good alignment of values."

BusinessDesk.co.nz

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