Local M&A market remains resilient
Media Release – 19 October 2016
Embargoed until 5am, Thursday 27th October 2016
Local M&A market remains resilient amid global uncertainties
New Zealand companies continue to show a steady appetite for M&A deals – while the rest of the world takes a more conservative stance in response to various global uncertainties.
According to KPMG New Zealand’s latest M&A Predictor, our local market remains relatively buoyant; with deal volumes up 14% during the first half of 2016 (relative to the comparable 2015 period).
Nick McKay, KPMG M&A Director, says the sustained level of deal activity is a reflection of New Zealand’s robust economic performance, coupled with little activity in the IPO market given sustained market volatility (which was analysed as part of the latest M&A Predictor). There is little change locally to either market confidence (measured by forward PE multiples), or capacity to fund deals (measured by net debt / EBITDA); which is in contrast to the results the analysis produced for both Asia Pacific and globally.
“Strong consumer confidence and retail spend statistics, as well as dairy prices picking up more recently are all important factors contributing to New Zealand’s GDP growth of 3.5% for the recent June quarter. Industries performing particularly well recently include building materials and tourism, a reflection of strong fundamentals such as population growth, strong net migration to New Zealand and of course a very strong residential and non-residential construction pipeline for the next 10 years”, says McKay.
“Globally, we’ve seen corporates take a fairly conservative stance in response to various global events – such as Brexit, the upcoming US election, uncertainty around interest rate rises and sustained pressure on oil prices” says McKay. “As a result, globally we’ve seen capacity (measured by net debt / EBITDA) increase 12% as corporates conservatively grow cash reserves or reduce borrowing levels. Interestingly, we’ve seen a real slow-down in the number of deals actually completing offshore – in-fact down 14% - consistent with messages we’ve had from our colleagues offshore that many deals are being ‘parked’ or taking longer to achieve a successful outcome, particularly post Brexit earlier this year.”
Sustained volatility in New Zealand’s equity markets has also ensured that the IPO market has remained quiet, despite valuation levels remaining strong. There have been only two listing so far this year; with Tegel, and Investor Property.
The latest issue of the Predictor also analyses the “staggering” influence of Chinese activity in the global M&A space. Ten years ago, China represented around 2% of M&A volume (both domestic and outbound); while today, it is around 24%. McKay says, “Once focused on energy and resources, entities from China are increasingly focused on meeting the needs of its rising middle class. We’re seeing entities from China increasingly search for value-added targets which deliver new technologies, premium products and brands which can leverage an existing supply chain and route to market.”
Other key findings from KPMG New Zealand’s October 2016 M&A Predictor:
• We are seeing emerging M&A interest in the Engineering & Construction space. This is a reflection of strong fundamentals, Australians looking for diversification opportunities, and possibly a result of potential change in retention regulation.
• Over the past 18 months there has been significant activity in the Honey and Vitamins / Supplements / Nutraceuticals sectors (reflecting strong demand by China based investors). With several large transactions now being completed, activity in these sectors is a little cooler presently, reflecting a slim field of reasonably sized and actionable opportunities.
• Two new private equity funds have recently been established (Milford and Oriens) and we understand a couple of existing New Zealand private equity funds are contemplating raising new funds over the coming 6-12 months.
• Australia and the U.S. have been acquisitive in the local market – both doing c.50% more deals in New Zealand (relative to the prior year comparable period).