A cautious momentum . . .

Offshore buyers paid significant multiples for those assets that rest strongly on the quality associated with New Zealand products. Photo / Richard Robinson

The strong finish and positive trends in 2017 signal a good year ahead for our private capital markets — despite private equity concerns over exit options, write James Hawes and Andrew Matthews.

On the whole 2017 was a more modest year in the private capital markets with deal values only half that of 2016 (US$8.6 billion versus $3.5 billion).

The difference can be ascribed, in part, to a general decline in market confidence during the first half of the year — driven by uncertainty in the global capital markets. But it is mostly due to the absence of a few more higher value deals, like Sistema, Sky/Vodafone and Fairfax/NZME, which had propped up performance in 2016.

However, despite the inconsistent performance, we observed some positive trends over the past year.

From an "NZ Inc" perspective, it was good to see our credentials as a leader in innovation bolstered through transactions such as Apple's acquisition of Power by Proxi — Auckland's world-leading wireless charging company.

The power of the "Made in NZ" badge was also once again proven, as offshore buyers paid significant multiples for those assets that rest strongly on the quality associated with New Zealand products. The acquisition of Macpac by Super Retail Group and of Icebreaker by VF Corporation were prime examples of this trend.

Last year also saw the continuation of the previous year's move toward a rationalisation of non-core assets. This trend was particularly evident in the insurance world, with CBA's disposal of CommInsure and Sovereign.

It's evident that quality assets will remain the focus for private equity. Our domestic PE firms in particular demonstrated success over 2017 in actively hunting proprietary deals.

These trends, and perhaps some pent-up frustration over general inertia in transactional volume, resulted in a significant bounce in deal volumes in the second half of 2017 — which has continued into 2018. Examples include the deals already mentioned, but also Paymark, the Mad Butcher assets, and trust company Complectus.

However, we've seen this increased momentum tempered with a degree of caution within the private markets, particularly for private equity buyers around future exit options.

Especially given increasing concerns with the Overseas Investment Office regime.

Having regard to our colleague Michael Pollard's thoughts on the public capital markets (DX), we continue to believe that private capital provides a critical source of finance to our local companies which are displaying strong growth but are not yet ready to spread their capital base further.

There remains plenty of private capital interest in New Zealand, and large portions of investable "dry powder" ready to be deployed. Combined with the aforementioned trends, there is every reason to expect a strong year.

● James Hawes and Andrew Matthews are partners in Simpson Grierson's corporate team.