What's on the horizon for merger and acquisition (M&A) activity in New Zealand?
Following a roller coaster year for mergers and acquisitions (M&A) in 2020, we predict that New Zealand’s comparative success with its COVID-19 response is likely to favour acquisition activity in New Zealand in the year ahead.
We believe that 2021 will see:
- 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.
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