2020 M&A Forecast - Public markets: Under pressure
More about value potential, than listing
We continue to see trade and private equity buyers with access to funding taking a significant interest in high-performing NZX companies. But buyers are also interested in NZX companies that haven’t performed to expectation, where they believe that they can extract value by taking the business out of the listed environment.
Listing is increasingly viewed as a less attractive option due to higher compliance costs, stringent technical requirements, increasing activity from market regulators supervising listing companies and the ability to obtain alternative funding from other non-public sources.
However, a number of NZX companies did highlight the benefit of being listed when raising capital in market through debt or equity issues. Successful equity capital raisings for THL, Kathmandu and Tower were all completed in 2019, and in many cases those capital raisings were used to fund M&A activity. A number of companies also conducted successful debt capital raisings. We expect this availability of capital to continue into 2020 given how relatively straightforward the fundraising process is for listed companies.
Despite the efforts made by market participants, including the publication of the Capital Markets 2029 report, we don’t foresee a significant increase in the number of companies listing on NZX in 2020. Why? We see four main reasons:
3. While sale processes are taking longer to complete and there is some uncertainty as to regulatory approvals and other hurdles, these processes are still considerably shorter and less intensive than an IPO process. They also generally provide for a full exit if required, even if some consideration may be subject to an earn out.
4. Private processes don’t expose the directors to the same potential liability as an IPO, and don’t subject the company to the same level of ongoing cost, compliance and scrutiny as it would face in the public environment.