The number of merger and acquisition deals in New Zealand is set to climb despite a backdrop of global decline, according to a report by KPMG.
In its latest six-monthly Mergers and Acquisitions Predictor, KPMG said the number of deals taking place in New Zealand over the past 12 months had increased steadily and leading indicators pointed to appetite by corporates continuing to improve.
In July last year fewer than 140 deals took place in New Zealand but KPMG estimated that by May this year around 160 deals were done.
But globally deal numbers have fallen from just under 31,000 in July 2012 to fewer than an estimated 29,500 in June. Reported deals were even lower at under 28,000 in June.
Tony McNaught, head of mergers and acquisitions at KPMG New Zealand, said the positive forecast for New Zealand was driven by improved market confidence based on how much companies were prepared to pay for acquiring another business, debt levels relative to earnings and profit expectations.
McNaught said New Zealand's market confidence had improved slightly on the back of its stable economy but the rest of the world and, in particular, the Asia-Pacific region had gone backwards.
"What is worrying, is the Asia Pacific region has gone backwards. Confidence in Australia and China is down and they are our major trading partners."
McNaught said a sustained drop by New Zealand's key trading partners could have a negative flow-on effect for New Zealand firms.
On a relative debt basis New Zealand companies still had high debt levels by global standards but they were forecast to fall by 19 per cent by June 2014 because of rising earnings levels, McNaught said.
"What has happened to the ratio from a year ago is that our earnings have improved. The rest of the world is still paying down debt but we are improving ebitda [earnings before interest, tax, depreciation and amortisation].
"Paying down debt is typically a sign of a less buoyant economy but New Zealand is not thinking like that."
Profits for New Zealand's largest companies were expected to have increased by 13 per cent over the past six months.
That contrasted with profit expectations in Australia which were down 19 per cent from a year ago.