NZ companies dominate local mergers and acquisitions

By ELLEN READ, markets writer

New Zealanders spent last year buying back the family silver - albeit cautiously and largely as a result of troubled global corporates divesting their kiwi investments.

Merger and acquisition figures, from research group Thomson Financial, show home-based acquirers dominated last year.

Announced - but not necessarily completed - merger and acquisition activity fell 37.39 per cent to be valued at $7.34 billion last year, from $13.27 billion in 2001.

The number of announced transactions also declined, to 206 from 251.

Completed transactions plunged 59.93 per cent to $7 billion in value, the lowest recorded since 1998's $7.15 billion.

Almost 85 per cent of the total announced and nearly 90 per cent of completed volumes were domestically driven - meaning it was a New Zealand company doing the buying.

Historically (1997 to 2001), domestic merger and acquisition transactions averaged only 48.3 per cent and 48.32 per cent for announced and completed transactions, respectively.

The biggest deal of the year involved a New Zealand buyer of a New Zealand company - as Auckland's ratepayer-owned Vector acquired UnitedNetworks from financially stretched US owner Aquila.

To raise money Vector, which is owned by the Auckland Electricity Consumers Trust, sold $1 billion worth of assets, to New Zealand owners Powerco and Hawkes Bay Networks - thereby raising local merger and acquisition involvement.

Other domestic deals in the top 10 involved New Zealand Dairy Foods, which was sold by Fonterra to Graeme Hart's Rank Group.

The dominance of domestic deals can be put down to the US and European recessions which have left big foreign companies with little appetite for foreign mergers and acquisitions.

It has also left many with financial troubles back home, so they are pulling out of overseas investments in a retreat to core business.

To survive credit downgrades many are selling assets to get their balance sheets back into shape.

The local decline in overall activity must also be put in the context of a severe contraction in global mergers and acquisitions activity.

Thomson's figures show a 27.6 per cent decline in the worldwide value of announced mergers and acquisitions last year.

"There just hasn't been much activity globally and we've followed the trend," said Deutsche Bank's New Zealand head, Brett Shepherd.

The reduction of foreign ownership of local corporates is in no way a sign of reduced faith in New Zealand, he said.

"It's not like there's been a fire sale and everyone's running away from New Zealand," said Shepherd. The fact New Zealand companies were doing the buying was a sign of local strength.

He predicted more of the same in the year ahead and also more New Zealand companies making Australian purchases.

Of overseas companies which were in our market last year, Australia was the largest foreign investor for announced deals, contributing $1.12 billion or 13.8 per cent to the total.

Activity was busiest in the energy and power sector - with Vector's offer for United Networks, the largest announced and completed deal for the year.

The second-largest deal announced and completed was the joint bid by Powerco and Hawkes Bay Network for United's Eastern Region Electricity Network.

The retail sector was the second most active for both announced and completed deals.

It recorded transactions amounting to $958.28 million and $851.98 million respectively.

The Vector/United Networks deal propelled Deutsche Bank and ABN Amro to the top of the advisers list - as they assisted United and Vector respectively.

Ranking completed deals by value, ABN Amro was top adviser, climbing from last year's number 12 spot. Deutsche was ranked second and Deloitte & Touche finished third.

Deutsche Bank was top of the announced by value table, with ABN Amro in second place. Macquarie Bank was third.

ABN Amro investment banking director John Moore said he remained cautiously optimistic about merger and acquisition levels as there were "lots of great companies in New Zealand".

"The big thing is are there any more elephants out there and yes, there are. But whether they are 2003 deals or 2005 deals is not known."