“The idea of ‘NZ as a haven’ for international investors is one of a number of interesting trends pointing to a strong year,” the firm says
MinterEllisonRuddWatts has forecasted a busy year for M&A in its M&A Forecast 2021 report.
“Following a roller coaster year for M&A in 2020, New Zealand’s comparative success with its COVID-19 response is likely to favour acquisition activity in New Zealand in the year ahead,” the firm said.
Nearly every transaction was either stalled or dropped when COVID-19 first hit in March 2020 and the country went into lockdown, according to corporate team head and partner Silvana Schenone. However, the year closed with a strong recovery.
“We’ve seen deal volumes build throughout the remainder of 2020, with a very busy period in the run up to Christmas. All the indications are that these comparatively high deal volumes will continue for the rest of this year,” she said.
MinterEllisonRuddWatts said that “the idea of ‘NZ as a haven’ for international investors is one of a number of interesting trends pointing to a strong year ahead for M&A activity.” This belief is expected to spur investment into the country over 2021.
While a number of businesses pulled out of the market during the lockdown period in 2020, these companies wound up trading well in the latter half of the year and are likely to return to the market. This indicates rising interest in the country, which is “being matched by an increased supply of good quality assets,” the firm’s corporate team said.
MinterEllisonRuddWatts also pointed to “returning, cashed-up New Zealanders” boosting small business sales as they seek out longer-term investments “for their money and energy.”
Corporate and private equity activity
Capital raisings made up a large chunk of deals in 2020, but with many of these transactions completed and a decline in the demand for fundraisings, MinterEllisonRuddWatts sees a large number of investment bankers returning their focus to their M&A pipeline.
“While debt providers may be more selective about the deals they will fund, there is plenty of money to lend (at good rates). Increased availability of non-bank lending will add to the competition and help facilitate more deals,” the firm said.
Moreover, the volume of distressed acquisitions is expected to rise in the second half of 2021 as “the economic reality for many New Zealand businesses will start to bite,” MinterEllisonRuddWatts said.
“International corporates will trim and divest non-core New Zealand assets, to build cash and shore up their position in key jurisdictions,” the firm said.
Activity from the private equity sector is also expected to keep the firm busy.
“International corporates and private equity funds are very interested in New Zealand assets and are diverting resources to deals on our shores in favour of deals in their own backyards,” said corporate partner Neil Millar, MinterEllisonRuddWatts’ private equity expert. “Our domestic private equity clients are seeing the fruits of their largely conservative investment approach, with the majority of their investments weathering the storm in pretty good shape. 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.”
The M&A Forecast 2021 report showed that 74 businesses in New Zealand have been held by PE for at least three years, suggesting that a number of businesses are set to exit the market in a few years based on typical investment cycles. However, the firm also predicts a strong year for IPOs, which will shift assets from M&A exit strategies.
In addition, a heightened focus on due diligence is expected to bump up costs and slow down the completion of deals.