Kiwi multimillionaire Craig Heatley has taken a strategic stake in Blue Star Group, the vehicle once controlled by embattled expat businessman Eric Watson, in a deal consultants PwC advised on.
PwC, in its first quarter M&A update, said it had advised Heatley on the purchase of transtasman private equity group,Mercury Capital, in February.
Blue Star is a leading provider of print, marketing, and communications solutions in New Zealand and is involved in digital printing, offset printing, signage, direct mail, and promotional products.
Heatley founded Rainbow Corporation in the 1980s which had interests in supermarkets, Rainbow’s End and property.
He set up Sky Network Television, later selling his stake in 2002.
Watson took control of Blue Star in 1992 and later went on a big buying spree, which included Whitcoulls, U-Bix Business Machines, Wang New Zealand and PC Direct.
He then sold Blue Star to Washington DC-based US Office Products in 1996.
KPMG took control of Watson’s Cullen Group entities just over four years ago after the Inland Revenue Department (IRD) won a tax judgment against it, ruling the group was liable to pay $51.4m.
PwC, in its M&A update, said deal volume in the first quarter of this year was low, coinciding with softening economic conditions.
There were 26 deals in the first quarter compared with 46 in the same quarter in 2023 and 44 in Q1, 2022.
“Looking forward, buyer and investor enquiries remain positive despite the numbers for this last quarter,” PwC said.
Trade investors accounted for 92 per cent of total deals [24 deals] up from 75 per cent [39 deals] in Q4, 2023.
PwC said 58 per cent of deals in Q1 [15 deals] involved domestic buyers, compared to 46 per cent [23 deals] in Q4.
Financial services emerged as the most active sector, accounting for 35 per cent of deal activity (nine deals), followed by Telecommunications, Media and Technology at 19 per cent (five deals).
Regan Hoult, partner - corporate finance - at PwC - said deal volume was a good bellwether for the state of the economy.
“There has been a significant drop-off in Q1, and if you look at that over the last 12 months to March, 151 deals were recorded versus 227 in the 12 months before that - so it’s down one-third on an annual basis,” Hoult said.
“There has been a significant reduction in volume that we saw in 2022 and at the start of 2023, which I think we can say was a period of heightened activity.
“At the moment, we have come through a more below-average period for deal volumes,” Hoult told the Herald.
Today’s high interest rates, compared to very low rates during the Covid period, were influencing deal volume.
“I think a combination of interest rates, inflation, general business confidence, is translating into lower consumer spending,” he said.
PwC's Regan Hoult. Photo / Supplied
Hoult noted that some NZX-listed companies have issued earnings downgrades due to the slowdown in spending.
“We are seeing that in the private market as well where many companies have struggled over the last 12 months in achieving their budgets,” he said.
“With that, it does make it more difficult to meet on value when companies are not really meeting their expectations,” he said.
Private equity activity was subdued over the quarter, although Auckland-based private equity firm Direct Capital bought Hiway Group in February.
“We certainly had a lot of enquiries from private equity and the interest was very strong,” he said.
“We expect that the next few quarters will be a lot more active, given the number of deals that we are working on, and they are keen to deploy capital,” Hoult said.
“As conditions stabilise, I think that the meeting of buyer and seller will result in more transactions,” he said.
Hoult said the deals in the first quarter tended to be smaller in size.
The data showed that Australia remained the number one country for inbound investment, followed by the United States, France and Britain.
Financial services again featured strongly in the deals done, continuing what has been a trend of consolidation in the sector.
Looking ahead, Hoult said the market appeared to be coming out of a rough patch.
“From the data that we are seeing - and we are looking in the rear vision mirror with a lot of stats - we have seen most of the slowdown in the second half of last year and early this year,” he said.
“There are still a lot of potential headwinds there, but there are also signs that we are starting to get out of the post-Covid era where we saw stimulus in that very unusual time for the economy,” he said.
“Going forward, we keep getting more confidence in the state of business activity and that should lead to a stable base for more transactions,” he said.
There is a continuation of inquiry around baby boomers wanting to do something with their businesses as they near retirement age, Hoult said.
“That continues to be quite a bow wave coming through.”
- Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
