New Zealand lags behind sentiment for acquisitions

New Zealand lags behind improved international sentiment for acquisitions

The number of New Zealand businesses planning to grow through acquisition over the next three years is virtually static, according to a survey of privately held businesses by Grant Thornton.

The figure remained almost unchanged at 37% - in line with the preceding three years.

On the international stage, however, more privately held businesses are planning to grow through acquisition with the figure jumping 8% to 34% at the end of 2010 when the survey was conducted.

Fears that New Zealand could be entering into a double dip recession are highlighted by the findings.

Martin Gray, head of lead advisory at Grant Thornton New Zealand, said the International Business Report (IBR) indicated that the New Zealand business sector appeared to be flatter than the rest of the world.

“There are many reasons for this but one of the main concerns is the scarcity of capital and the availability of funding to finance growth. The banks for their part are often requiring businesses to pay down their debt and we have seen second tier finance organisations largely wiped out.

“With the concentration of businesses on getting their own house in order, there is a real worry that New Zealand could enter into a double dip recession. We saw that 2010 was generally a harder year for businesses than 2009.”

The scarcity of funding was highlighted in the question, which asked businesses how they expected to fund growth over the next three years. Sixty nine per cent of those surveyed expected to use retained earnings, 49% bank finance and 20% private equity.

Gray: “The lack of capital is a concern when we think about how New Zealand improves its productivity and how we grow internationally competitive businesses. We are seeing private equity re-entering the market, and some encouraging activity from well capitalised businesses that sense this is a good buying opportunity, but more and more the capital is coming from offshore

"The fact that there has been no increase in the number of businesses looking at acquisitions as a means of growing revenues underpins the worry that the mindset has not yet shifted from survival to strategic growth. This has been mirrored by lacklustre consumer demand over the last 12 months. Households are paying down debt too."

Privately held businesses in Brazil, Russia, India and China were among those leading the way with 44% of respondents considering an acquisition, compared with 27% previously. Driven by the desire to access new markets and acquire new technology or established brands, 45% of businesses in mainland China plan to grow through acquisition, an increase of 19% over 2010.

“Likewise, Indian companies, which are well experienced in dealing with overseas M&A markets, are now back on the acquisition trail, with 40% of those planning an acquisition in the next three years expecting their deals to be cross border.” Gray said.

The key drivers for growth by acquisition in New Zealand are to build scale (45% of respondents), and access to new geographic markets (42% of respondents).

Interestingly, 21% of owners foresee a change of ownership in their business in the next three years.

“Gray said this reflects the aging of New Zealand business owners. These owners need to plan for the transition to new ownership.”

- ends -

© Scoop Media