Last November marked the culmination of 10 years of hard work, high stress and close calls that have at times taken a serious toll on my health. On the last day of the month, we finally settled on the sale of New Zealand Guardian Trust, part of my business holdings, to the global company Tricor. The actual terms of the sale were agreed much earlier, on 2 July, after 12 weeks of intensive due diligence by the purchaser involving the review of hundreds of documents and countless hours of meetings with my executive team.
Why did the sale take five months from that point?
In a phrase: the Overseas Investment Office.
This department is part of Land Information New Zealand, whose primary responsibility is the provision of information about land but which also oversees inbound investment from offshore.
The primary logic for incorporating the OIO into LINZ is to control the sale of 'sensitive land' to overseas purchasers. Logically, this is managed by LINZ given its primary focus is on the land and marine environment. The premise is the most beautiful and ecologically valuable parts of our country should not be sold off without control and oversight to offshore investors who may not share our values and aspirations.
However, companies – such as my own – are also subject to overseas investment legislation should we wish to sell to offshore buyers.
This is where the logic starts to unravel. Approval for the sale of a business over NZ$100 million (NZ$200 million if the purchaser is Australian) is required before a transaction can be concluded. Two significant problems arise from this. First, the OIO is slow; the five months it took to grant approval in my case was much longer than the purchaser took to decide to buy the business in the first place. Second, $100 million (just £50 million or US$67 million) is a frighteningly low threshold for Government intervention.
In contrast to the complex due diligence Tricor did, the OIO only had one question to answer: was the prospective purchaser an appropriate acquirer of the asset? This included determining whether the asset was of such significance that it could not be sold to an offshore buyer.
The OIO had determined that the asset could be sold outside New Zealand before: once when I bought the business as an offshore purchaser myself, and again when we had an aborted sale in 2017. In fact, the company had been foreign-owned for much of the last 20 years and could clearly be sold to an offshore buyer. This merely left the question of whether the buyer was suitable. Well, the purchaser is about as blue-chip as a company can be, having recently been involved in a US$2.7 billion transaction and backed by UK-based private capital.
Despite all this, the OIO's decision took 22 weeks, nearly twice as long as Tricor's due diligence. Twenty-two weeks in which the running of the business – a major corporate trustee with responsibility for many of New Zealand's largest KiwiSaver providers and fund and wealth managers – was effectively stalled. Twenty-two weeks in which new business could not be concluded. (Even after the first 14 weeks of deliberation, OIO and Crown Law were reluctant to share so much as an interim draft decision with the purchaser.)
Of what value was this process? None. Not a single dollar was added to the New Zealand economy. Not an iota of risk was eliminated. Ironically, just after the approval was given, there was a review of the process which yielded new rules including, for the first time, defined timetables for the OIO to respond to applications. (For the record, the average response time under the previous regime had been six months – meaning our application, shockingly, beat the clock.)
If the bureaucrats and politicians are congratulating themselves on ushering in this improvement, they would be missing the point. The question is not whether the process should take 20, 50 or 180 days, but why it should happen at all? Why should our bureaucracy have the right to decide whether a business can be sold offshore (leaving aside whether a threshold of $100 million makes sense in 2021)?
Unless there is a national security issue – in which case a rapid ministerial decision to review could be initiated – why should the government have a right to interfere? The current process has three adverse impacts:
•It serves to deter offshore companies wanting to invest in local businesses. In our case, the purchaser would likely not have proceeded with the acquisition had it known how long approval would take.
• It depresses the value of New Zealand businesses. Often local buyers will offer less than an offshore buyer solely because they know the OIO process is slow and unpredictable.
• Most worryingly, it incentivises entrepreneurs to sell their businesses before they reach the OIO threshold, or it encourages them to move offshore before it is reached so they can more freely obtain offshore capital and bypass the arduous OIO process. As a result, innovation, jobs and tax revenues move offshore. A process designed to protect our land environment ends up harming our ability to compete in the global economy.
If this were an isolated incident, it might be tolerable – but time and again, we see bureaucracy impeding business for no apparent reason. Rather than simply amending existing legislation in the hope of improving it, government should ask whether some long-standing legislation is needed at all.
At the very least there needs to be swift reform of the OIO process for businesses, perhaps bringing it under Treasury. We should materially raise the threshold and impose an even tighter decision timetable. Some might express concern about assets of strategic importance being acquired by foreign owners, and there is no reason ACC or NZ Super could not be deployed as acquirers of key assets to allay this fear – though we must accept that an economy the size of ours needs offshore capital investment in order to grow and be competitive. Of course, if the Government is not prepared to put its own (our) money where its mouth is, why should it have any right to interfere with an offshore sale process?
Earlier in my business career I remember one of my senior managers talking to our board about a process she had reviewed to find out if improvements were possible. The process involved 150 individual steps. The manager challenged us to guess how many steps were in the revised process. The answer was zero. Her review found the whole process was redundant and could be done away with – but no one had thought to ask why we were still doing it.
Legislation and bureaucracy are no different. If Aotearoa New Zealand is to thrive economically, the status quo cannot hold, and a more questioning process must be applied to redundant legislation.
• Andrew Barnes is a businessman and philanthropist. He is the founder of Perpetual Guardian.