6 Mar 2018

Pick up expected in mergers and acquisitions - report

11:55 am on 6 March 2018

New Zealand is expected to see a pick-up in mergers and acquisitions, even though several big deals were stymied by regulators, last year.

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NZME and Fairfax had a proposed merger denied. Photo: RNZ

Chapman Tripp's latest Mergers and Acquisitions report says the Commerce Commission took the gloves off last year in ruling against a number of proposed mergers, including the deal between Vodafone NZ and Sky TV, NZME and Fairfax, which is under appeal, and Vero's scheme of arrangement with Tower.

In addition, the Overseas Investment Office blocked HNA's $660 million bid for UDC Finance.

"Overall, 2017 was an outlier year for the number of deals the regulator has turned down," the report says, adding that a more proactive approach to enforcement could make some buyers think twice before proceeding without the blessing of the Commerce Commission.

"The upshot for 2018 is that consents will likely take longer, and may be more challenging to obtain. Foreign bidders may be at a further disadvantage, particularly if sellers are prepared to leave some money on the table to secure a certain and timely exit from a domestic acquirer."

Tim Tubman who heads up Chapman Tripp's corporate team said there was likely to be more M&A activity, this year, despite the regulatory hurdles.

"In particular, the proposed legislative changes to the Overseas Investment Act by the new government will pose significant challenges for some transactions in 2018," Tubman said. "OIO processing times are beginning to lengthen, after a period of improvement prior to the election."

He said the hot sectors were financial services, consumer and technology, with divestment in the forestry sector expected to increase with regulatory changes, while media sectors were expected to see increased competition and pressure to consolidate.

"We are seeing a pipeline of M&A activity fuelled by cashed-up strategic investors and private equity buyers with plenty of dry powder, all underpinned by generally favourable economic conditions," Mr Tubman said.

"Our data shows more seller-friendly deal terms in some areas. This may indicate a willingness from buyers to be more pragmatic in order to get deals across the line," he said.

Mr Tubman said New Zealand's companies were attractive to investors, despite their relatively high valuations.

M&A activity was also expected to outpace new listings on the the NZX this year, with a pickup in new listings expected next year, once new listing rules are in place.