New Zealand’s response to the pandemic has made made it a favourable target for merger and acquisition activity, following a tumultuous year of highs and lows.
An annual report from the law firm, MinterEllisonRuddWatts, says New Zealand was seen as a haven for international investors, although it also expects to see a big year for initial public offers, which will drive those assets away from merger and acquisition (M&A) activity.
“With the increase in the stock market and more cash in the market looking for returns above bank deposit rates, we think the pendulum is swinging back in favour of IPOs [initial public offerings],” the report says.
Despite that, legal partner Silvana Schenone said New Zealand was likely to see more M&A activity as a result of its handling of Covid-19.
“After an initial Covid-19 shock in March 2020, when New Zealand was first put into lockdown and almost every deal was put on hold or abandoned, we saw deal volumes build throughout the remainder of 2020, with a very busy period in the run-up to Christmas,” she said, adding the comparatively high volumes would continue for the rest of this year.
Partner Neil Millar said private equity funds were interested in New Zealand assets and were diverting resources to support activity here.
“These funds are cashed up and bullish, well aware that Covid-19 has likely created new bolt-on opportunities that perhaps did not exist 12 months ago,” Millar said.
He said a continued belief that New Zealand was a “safe haven” would drive investment throughout 2021.
The firm also expected returning New Zealanders would continue to drive a mini-boom in small business sales.
The firm said the increased interest in New Zealand was matched by an increased supply of good quality assets.
“Many businesses that were pulled from the market during lockdown have traded well in the second half of 2020 and will likely come back to market,” it said, but added the economic reality for many New Zealand businesses would begin to bite in 2021.
“As a result more distressed acquisitions will occur in the second half of the year.”
The firm also expected to see more competition from lenders, with the increased availability of non-bank lending.
It said international corporations were expected to sell or trim investment in non-core New Zealand assets, in order to build cash and shore-up their position in other jurisdictions.
“We expect acquisition and divestment activity from them in 2021 – noting that 74 New Zealand businesses have been held by private equity firms for three years or more, and so on normal investment cycles, a slew of exits will need to happen in the next few years.”
However, it expected to see increased due diligence, which would add cost and slow deals down.