M&A activity buoyed by deals that were previously on hold in 2020. Photo / NZME
A world market awash with capital meant New Zealand's record run for mergers and acquisitions continued over the third quarter, and the outlook is for more of the same in the year ahead, PwC said.
The consultants said 54 deals were completed or announced over the quarter, up from 47 in the second quarter and just 12 in the third quarter of 2020.
Persistent low interest rates had led to reduced cost of capital, and higher valuations had created more sellers and a strong appetite for mergers and acquisitions from buyers, PwC said in a report.
"Activity has likely been buoyed by deals that were put on hold throughout 2020 coming back to market," it said.
"Deals have also been brought forward due to uncertainty surrounding the business environment as we continue to navigate the impacts of Covid-19."
The report said capital providers increasingly saw New Zealand tech as a place to invest and sophisticated operators are producing high-value exits.
PwC's corporate finance leader Regan Hoult told the Herald the data backed up what he and his team were seeing at the firm.
"There definitely has been heightened activity in our business, and in the market as well, so the data reconfirmed what we are seeing in our own activity levels," Hoult said.
There were always a number of drivers in any particular deal, he said.
"The macro backdrop at the moment is extremely supportive, with low interest rates and a world that is awash with capital - capital that is going into institutions and funds.
Private equity funds looking for an investment were setting the backdrop for deal activity, he said.
"Definitely mergers and acquisitions are on the corporate agenda, supported by strong balance sheets," he said.
"We are seeing corporates now looking at their growth agendas and looking for acquisitions is part of that."
"That played out in a lot of the Q3 data with a lot of New Zealand corporates looking at consolidating or their growth adjacencies."
M&A activity in the technology sector was vibrant and was going from strength to strength.
"That's the other end of the extreme where there is some very valuable IP and growth attracting both local and international investors.
"We might see more of that next year as we open up (from Covid restrictions).
"Some of the sectors that have been impacted by Covid like leisure, tourism and hospitality sectors - those sectors that need to recapitalise.
"We might then start to see more deal activity with the light now visible at the end of the autumn and with investors actually being able to form a view around value."
Along with low interest rates, high share prices were also supporting M&A activity as shares offered another means of consideration for transactions.
For companies to justify their high share prices and high multiples they needed to provide a good growth story, he added.
Hoult said there were no signs of M&A activity abating.
"Our pipeline, as a leading indicator of deals for the start of next year, is very strong - as strong as it is now."
One sector that did not feature strongly in M&A activity was healthcare, but Hoult expects that to soon change.
"There are a lot of healthcare deals that we are aware of that we expect to come through in the coming months," he said.
"Technology will remain a very active space.
"We have just got some amazing momentum now around innovation and entrepreneurship."
Looking ahead, consumer businesses will be another area likely to attract attention from offshore investors.
Then there are those that have been badly hit by lockdowns which will need to start thinking about recapitalising to get up and running again.
• M&A activity driven by local buyers remained strong. 37 of the 54 deals announced or completed during Q3 involved a New Zealand buyer. This continues the Q2 trend of heightened local activity in comparison to previous years.
• International cross-border M&A activity was well ahead of 2020 pandemic levels and slightly ahead of 2019 levels. Seventeen cross-border M&A deals were announced in Q3, with almost half of that activity coming from Australia. Australia continues to be a strong contributor to buying local New Zealand businesses.
• Technology, Media, Telecoms (TMT) again dominated deal flow, although pharma, medical and biotech activity was also strong.