KEY POINTS:
The stock market may be sliding and business confidence hitting an all-time low, but financial advisers are excited by new opportunities the shrinking economy presents.
They say while private-equity deals and large-scale takeovers have dominated headlines in previous years, the present market will see most activity around small-
and medium-sized enterprises (SMEs).
Cranleigh Merchant Bankers director Andrew Bayly says the market is becoming a trade buyer's domain.
"We are seeing more companies looking to buy out and do-up existing businesses and there's a lot of baby-boomers, people who are now holding senior management positions, who have acquired some money looking to buy businesses," he says.
"It's not necessarily been driven by distressed sales; they are a small component. A lot of it is people wanting to reduce risk, maybe introduce additional equity under the business, or sell out to focus on their core activity or existing business."
Bayly predicts a growing trend of people approaching their 50s or 60s looking for what he calls "ownership transition" opportunities - business owners looking to sell for a change in lifestyle and people looking to buy.
Fellow Cranleigh director Mike Stanton says it is important investors realise the market has experienced a shift in emphasis - financially-driven private-equity deals will still happen over the coming years, but will be less important than they have been.
"There will be more action from trade and industry buyers who have the expertise to manage and look at mergers or synergies," says Stanton.
Last week, Auckland Chamber of Commerce chief executive Michael Barnett announced more than half the businesses surveyed by the chamber believe business conditions will continue to deteriorate. But there is hope, with 14 per cent of respondents believing the situation will improve, up from 9 per cent last quarter.
Bayly thinks things are looking up, and activity among SMEs represents "exciting times".
Paul Glass, senior portfolio manager at Brook Asset Management, agrees the market's move towards trade buyers is a healthy development.
"I don't think [a lot of the private-equity players] were bringing much to the market other than loads of cheap debt. I think a lot of them probably lacked management skills," he says.
"Undoubtedly there will be much less activity [in private equity] this year, simply because credit is hard to get. When economic conditions are uncertain, people probably tend to concentrate more on their own businesses rather than trying to buy someone else's problems."
But the advisers agree shareholders in companies that experienced failed takeovers in the past year - such as Auckland Airport and Tourism Holdings - will be stewing.
Ian Lewington, chief financial officer of Tourism Holdings, says he imagines shareholders will be looking back and wishing the takeover by Australian company MFS Living and Leisure had gone ahead last year.
"The directors at the time recommended to shareholders it was a good offer and I guess looking back on that I wouldn't see anything that would change my mind. That $2.80 was a good price for the shares.
"I would think given the current share prices are around $1.50, shareholders probably look back and think they wished they had accepted."
Lewington says that under present market conditions, it's less likely there will be takeover activity in the general market because there is lower access to funds for private-equity players to do leveraged buy-outs.
Brook Asset Management is a shareholder in Auckland Airport and Glass believes the Government's intervention in its sale earlier this year was unsupportive of promoting international investors.
"What we were looking at there was a significant wealth transfer from the Canadians to predominantly New Zealand investors," says Glass. "I think that was a disappointing situation and I think the Government was misguided in its approach."
But Stanton says New Zealand will continue to attract overseas investment, especially in research and development, the science and technology sectors, and the country's food and land-based industries.
Bayly says it is important investors remember business is cyclic and a recession presents new openings.
"Over the past few years we have been on this growth path," says Bayly. "Now what's happening with the credit crunch and a number of different factors, such as fuel and food prices, is we are in a situation where we are restabilising.
"There is reassessment of risk and reassessment of asset funds. That in itself creates a new opportunity."