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A New Landscape Favouring M&A Activity In 2021

Following a roller coaster year for mergers and acquisitions (M&A) in 2020, New Zealand’s comparative success with its COVID-19 response is likely to favour acquisition activity in New Zealand in the year ahead. That is the prediction from MinterEllisonRuddWatts’ leading Corporate team in its latest M&A Forecast (link) released today.

The idea of "New Zealand as a haven" for international investors is one of a number of interesting trends pointing to a strong year ahead for M&A activity, with Silvana Schenone, Partner and Head of the firm’s Corporate division believing that the firm will be busy throughout the year.

"After an initial COVID-19 shock in March 2020, when New Zealand was first put into lockdown and almost every deal was put on hold or abandoned, we saw deal volumes build throughout the remainder of 2020, with a very busy period in the run-up to Christmas. All indications point to these comparatively high deal volumes continuing for the rest of this year," says Silvana Schenone.

The firm expects to see activity from both corporates and private equity firms, with the Corporate Partner and private equity expert, Neil Millar commenting:

"Our domestic private equity clients are seeing the fruits of their largely conservative investment approach, with the majority of their investments weathering the storm in pretty good shape. These funds are cashed up and bullish, well aware that COVID-19 has likely created new bolt-on opportunities that perhaps did not exist 12 months ago," says Neil Millar.

"International corporates and private equity funds are very interested in New Zealand assets and are diverting resources to deals on our shores in favour of deals in their own back yards."

The firm’s internationally recognised Corporate team makes the following predictions:

Continued belief that New Zealand is a ‘safe haven’ driving inbound investment throughout 2021.

The influx of returning, cashed-up New Zealanders driving a mini boom in small business sales as they look for longer term homes for their money and energy.

Increased interest in New Zealand, being matched by an increased supply of good quality assets. Many businesses that were pulled from the market during lockdown have traded well in the second half of 2020 and will likely come back to market. This will supplement those that were always targeting an exit in 2021.

With emergency fundraisings now largely completed and the appetite for raising funds diminishing, many investment bankers will return to business-as-usual and re-focus on their M&A pipeline.

The economic reality for many New Zealand businesses will start to bite in 2021, and as a result more distressed acquisitions will occur in the second half of the year.

While debt providers may be more selective about the deals they will fund, there is plenty of money to lend (at good rates). Increased availability of non-bank lending will add to the competition and help facilitate more deals.

International corporates will trim and divest non-core New Zealand assets, to build cash and shore up their position in key jurisdictions.

Domestic and overseas private equity is bullish and cashed up, with acquisition and divestment activity expected from them in 2021 - noting that 74 New Zealand businesses have been held by private equity for 3 years or more and so on normal investment cycles, a slew of exits will need to happen in the next few years.

Not all conditions will be conducive to M&A in 2021 with an increased focus on due diligence expected - adding cost and slowing deals. It’s likely to be a big year for IPOs which will drive those assets away from M&A exit strategies.

MinterEllisonRuddWatts’ in-depth report on New Zealand’s M&A activity is available here.

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