Another big year in store for NZ mergers and acquisitions

Last year was a big one for New Zealand mergers and acquisitions and law firm Russell McVeagh expects to see more of the same in 2019, despite increased global uncertainty.

The firm said 176 deals, worth a combined $7.126 billion were announced in 9 months to 30 September 2018, representing a 172 per cent increase in deal value, and an increase of about 16 per cent in transaction numbers.

While figures for the full 2018 calendar year are yet to be released, activity was very high in the last quarter of 2018, and the firm expects this trend to have continued for the full year.

"In terms of particular trends, we think we will see an increase in non-bank lending, the predominance of private equity led transactions will likely continue, and take private transactions remaining popular," corporate partner Ben Paterson said.

Global economic uncertainty may impact M&A activity, which will soften as 2019 continues.

Given the expected slow-down in growth, demand may decrease for businesses in growth-sensitive sectors (such as technology) while demand for businesses in recession-resilient sectors (such as food and beverage and infrastructure) may increase.

"In particular, we expect that the slow-down in GDP growth in China, Europe and Australia will have ripple effects that impact the New Zealand economy - particularly the export industries.

"While these macro-economic factors are tempered by our Government's current fiscal policy, including increased spending on hospitals, housing and transport infrastructure, the overall outlook is uncertain which is a key reason New Zealand's business confidence remains lower than in 2018."

The firm said that, due to the late stage of the economic cycle, strong overseas demand for growth opportunities, the relatively weak NZ dollar, and the fundraising levels achieved by private equity sponsors, the recent surge in take-private transactions was expected to continue.

"We also hope to see some IPOs (initial public offers) later in the year to at least partially offset the significant reduction in the number of companies listed on the NZX," it said.

With debt funding remaining relatively cheap, and private equity funds still with significant volumes of committed - but uncalled - capital at their disposal, private equity sponsors are expected to remain acquisitive in New Zealand in 2019 and beyond.

Further, a number of portfolio entities owned by New Zealand private equity are likely to come up for sale, the firm said.

The uptake of warranty insurance (W&I) was expected to continue, as more Asia based funds and Asian corporates become familiar with the product.

"That said, insurers are carving out some key risk areas and, if this trend continues, the utility of W&I insurance may begin to be called into question, or used in conjunction with other security."

Financial services, fast moving consumer goods, Infrastructure and Agri-business are expected to command attention this year, the firm said.