2020 M&A Forecast - M&A financing predictions for 2020

Requiring the ‘Big Four’ locally incorporated
banks to hold a higher percentage of capital
against their risk weighted assets will create
significant flow-on effects for the financing
of M&A transactions in 2020.

We predict there will be:

• Further growth of credit funds and non-bank
  institutions in the debt market, including in the
  mid-market / sub-investment grade credits, where
  the large majority of New Zealand’s M&A activity is
  conducted;
• Entry of new debt providers to the New Zealand
  debt market, including credit funds and private
  wealth offerings;
• Increased use of alternative funding structures,
  such as unitranche, term loan B, stretch-senior and
  mezzanine/second lien lending structures. We assisted
  a private equity client with the first mid-market
  unitranche funded transaction in New Zealand,
  which completed in December 2019;
• A higher prevalence of advice being sought by
  borrowers from legal and specialist debt advisors
  who have knowledge of, and access to, the different
  types of debt offerings available;
• A general increase in margins (excluding the base rate); and
• Increased participation from offshore banks, resulting
  in an increase in their overall market share of debt.

In addition, we predict that the ‘Big Four’ New Zealand
banks will:

• compete strongly for strong and proven borrowers,
  sponsors and industries;
• look to syndicate more of their debt holdings,
• with lower targeted thresholds for final holdings; and
• provide transactional and working capital products on
  a super-senior basis in support of credit fund offerings.