Covid-19 dampened M&A over first half - Simpson Grierson

Respondentds to a Simpson Grierson-sponsored survey expect to see improved M&A activity over the next two years. Photo / File

The Covid-19 pandemic put a dampener on mergers and acquisitions over the first half of 2020, but law firm Simpson Grierson said there were reasons to be optimistic about corporate activity over the next two years.

The firm said there was a 3 per cent decline in deal volume in the first half of this year.

Deal value fell by 70 per cent in the first half to US$1.2 billion ($1.73b) against US$4.2b in the previous corresponding period in 2019.

Inbound mergers and acquisitions accounted for 96 per cent of deal value and 69 per cent of volume in the first half.

Simpson Grierson said its latest M&A survey looked at how the Covid-19 pandemic had changed offshore investors' plans to invest in New Zealand over the next 12-24 months.

"With so much uncertainty still in play, it's no surprise that offshore investors are telling us that deal flow will be subdued, with some deals on hold indefinitely," Simpson Grierson partner Andrew Matthews said.

"What surprised us is the positive sentiment and cautious optimism from many respondents, with 60 per cent intending to invest here in the next two years and 20 per cent saying the pandemic has actually increased their likelihood of investing in NZ," he said.

The survey found that 60 per cent of respondents intend to invest in New Zealand in the next two years and 29 per cent were considering investing here in the next 12 months.

Border closures and offshore investors' inability to personally inspect sites and evaluate targets is a key reason behind 48 per cent of respondents delaying their NZ investments, and 23 per cent have suspended or abandoned pre-Covid intended investments.

But despite the challenges, many respondents believe New Zealand's favourable investment fundamentals remain strong.

"Key to re-starting M&A activity on a larger scale will be the safe re-opening of our borders, with 75 per cent of respondents telling us they would increase investments here as a result," Matthews says.

"While such a move could still be several months away, 60 per cent of respondents say a travel bubble or partial re-opening of the borders would also make a positive difference."

Most respondents were generally approving of New Zealand's current regulatory settings towards overseas investment, however some did point out areas for improvement – especially around streamlining of the application and approval process.

"Maintaining business-positive economic conditions that focus on sustained development, and continuing to manage Covid-19 outbreaks effectively also featured strongly in the responses," Matthews said.

The survey feedback showed New Zealand was placed to have overseas investment accelerate out of the disruption of Covid-19.

Offshore investors were eyeing up opportunities here in technology, media and telecommunications, consumer, and pharma, biotech and medical.

Pharma, biotech and medical had seen the biggest uptick in interest, driven by an increased focus on health and medical products as a result of Covid-19.

However, until borders re-open, respondents said that private equity and venture capital investors will be the ones driving New Zealand's M&A activity over the next 12-24 months, with New Zealand based funds, and possibly some Australian funds, leading the way and taking advantage of temporarily reduced competition from offshore,

The survey canvassed the opinions of 35 foreign investors on the investment opportunities, trends and challenges in New Zealand – and how their investment intentions have been affected by Covid-19.

Selected respondents were a cross-section of the investors who responded to the 2019 Expanding Horizons survey, and were evenly split between Asia-Pacific, North America and Europe.

All respondents had completed at least one investment into NZ in the past five years.