2019 M&A Forecast - Keeping the pressure on
There have been a large number of bid processes conducted between June and December 2018. This activity has been fuelled by the ever increasing interest from overseas buyers and the confidence of domestic buyers in the quality New Zealand assets coming to market.
A well run bid process:
- keeps the pressure on bidders;
- ensures momentum is maintained;
- results in deals being executed quickly; and
- encourages fulsome offers
This is all good news for sellers looking ahead to 2019, provided they are motivated purely by a desire to find the best price. There can be conflict where management shareholders are being asked to roll over equity. In these situations, issues such as bidder ‘fit’ and alignment of longer term goals are also important. It’s worth remembering that the best ‘fit’ and prospects for rolling over shareholders may not represent the best exit price for outgoing shareholders.
As the buying frenzy continues, sell side advisers are becoming more prescriptive with many now requiring:
- extremely tight time frames to confirm bids and agree documentation;
- OIO applications to be prepared before confirmation of preferred bidder status; and
- warranty insurance to be arranged before confirmation of preferred bidder status
These demands put bidders on the back foot and saddles them with hefty costs and increased transaction risk (from the speed if nothing else) if they want to play. In a large deal we were involved in recently, the entire process was finished inside three weeks.
However, we are now seeing some push back – especially from private equity funds who are being burned by having to incur too much cost before getting to ‘preferred’ status. In response, and to encourage continued participation in the game, we are seeing more and more processes incorporating vendor due diligence (refer to page 9) to ameliorate some of the costs involved.
We predict these pressurised processes will continue into much of 2019, but expect there will be continued push back and a return to more normalised timeframes and requirements towards the end of the year. We also anticipate a hefty amount of buyer remorse as deals that are conducted too quickly come back to bite.