Mark Lister: New Zealand businesses catch 'mergers and acquisitions fever'

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. Photo / Supplied

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There's been a lot of corporate activity in recent months, and it feels like we might have caught M&A (mergers and acquisitions) fever.

Law firm MinterEllisonRuddWatts recently released its fifth annual M&A Forecast report, which notes that 2021 was indeed the biggest year on record for such activity in New Zealand.

One high profile announcement has come from the Government itself recently, with the proposed creation of a new public media entity incorporating Radio New Zealand and TVNZ.

There's also the merger of 2degrees and Orcon, which could see the formation of New Zealand's third-largest telecommunications company.

The local sharemarket has also seen its fair share of action over the past year or so.

Electricity company Mercury NZ acquired the retail business of Tauranga-based competitor Trustpower, healthcare heavyweight EBOS Group spent A$1.2 billion on medical device distributor LifeHealthcare, while Tourism Holdings is proposing to merge with its Australian-listed competitor, Apollo.

Scales Corporation, New Zealand's largest grower and marketer of apples has made no secret of its desire to spend some money. It's simply been unable to find the right target, having pulled out of the bidding process for winemaker Villa Maria last year.

The stock exchange itself has even got involved, with the NZX purchasing a 33 per cent stake in the Global Dairy Trade platform for dairy commodities.

There is a range of reasons why companies engage in this sort of M&A activity.

It feels like we might have caught mergers and acquisitions fever, Mark Lister writes. Photo / Getty Images

Sometimes businesses get to a point of maturity where the next logical leg of growth should come by acquisition. For others industry consolidation is necessary for survival, while sometimes a deal that's simply too good to turn down comes along.

A buoyant economy and low-interest rates have been additional drivers in recent times. Many businesses have found themselves in good financial shape, with plenty of borrowing capacity (or cash) on their balance sheets.

For many smaller and medium-sized businesses, it can also be a form of impromptu succession planning if there isn't a natural buyer amongst staff or family.

Instead, retiring businesspeople sell to competitors or private equity investors that have the motivation, ability, and capital to take their businesses to the next level.

Synergy is a word that often comes up when we are talking about mergers or acquisitions. This is really a way to sum up the financial advantages of bringing two businesses together.

That could mean benefits from only running one marketing and brand strategy, or the cost efficiencies from consolidating two head offices into one.

There are often added benefits of the increased scale that emerges, such as improved buying power with suppliers or a wider distribution network.

If the companies in question have similar (but slightly different) markets, there is an obvious opportunity to cross sell products and services to a ready-made customer base.

Looking ahead, deal-making activity is expected to continue.

MinterEllisonRuddWatts is predicting another busy year, singling out the healthcare, technology and financial sectors as those which will remain in the spotlight, as well as the food and beverage industry.

Corporate activity can provide an exciting springboard for many New Zealand businesses, particularly the large number that are sitting in private hands.

It can supercharge a growth strategy, introduce fresh capital and expertise, and ultimately set companies up for their next phase of success.

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.