Expect regulators to tighten their scrutiny on big deals this year, the firm warns
A strong mergers and acquisitions sector in 2017 will be closely watched by regulators, a top New Zealand firm predicts.
MinterEllisonRuddWatts said in its “Mergers & Acquisitions – Trends & Predictions” report that the Overseas Investment Office (OIO) will increase investigation and enforcement. The firm does predict, however, that the approval process will be streamlined, as the government has increased the office’s resources to make applications faster. To avoid delays — particularly as approval time lengthened last year to between six to 12 months — more comprehensive applications are encouraged.
The Commerce Commission, the firm said, will be focusing more on the technology, media, and telecommunications sector this year. For example, the commission has given a preliminary “no” to the Sky-Vodafone and NZME-Fairfax mergers proposed last year, with final decisions to be given tomorrow. Regulatory compliance is therefore an increasingly important area of due diligence for buyers of customer-facing businesses, the firm said.
The government will also be tightening rules on taxation to curb base erosion and profit shifting (BEPS), the firm said. The tax law changes will likely affect established cross-border M&A structuring and may even result in uncertainty. This will also affect employee-share schemes and tax rules for profit generated in the country by overseas businesses.
However, MinterEllisonRuddWatts also identified positives for the M&A sector this year. It said that 2017 will likely be a bigger year for roll-up activity. It advises owners to be patient, as bigger returns will be realised from waiting on other crucial transactions to be negotiated.
Owners have a reason to be patient, since the country is still an attractive market for private equity that usually funds roll-ups, the firm said. The firm’s expects continued transactional activity this year, particularly from foreign funds. Local funds that have recently bolstered their coffers and trade buyers with strong balance sheets will also be competing for investments. Larger firms are also likely to continue investing in strategic growth companies.
In financing transactions, the firm said all-in pricing for bank-debt funding will likely remain attractive this year compared to other sources of funding. It expects continued focus from the major banks on capital optimisation to maintain and protect profitability. Balance sheet constraints will likely boost syndication, the firm said, making multiple relationships with banks more important. It also predicts new entrants to establish in the space this year.
The firm also said that warranty and indemnity insurance has now become a fixture of the deal landscape in the country. It said that Australasia is fast becoming one of the most important warranty and indemnity insurance markets worldwide. It expects insurance to continue being used in key transactions this year.
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