A buoyant global mergers and acquisitions (M&A) market – coupled with a weakened New Zealand dollar - is likely to attract higher levels of offshore investment here in 2016, according to KPMG’s latest M&A Predictor.

The March 2016 edition shows the predicted appetite and capacity for deal-making among New Zealand companies is looking modest; with appetite up just 1% and capacity down 1%. In comparison, global companies are showing a 13% rise in capacity (measured by net debt to EBITDA).

KPMG’s Director of Mergers & Acquisitions, Nick McKay, says this will likely result in foreign investors and institutions taking a stronger interest in our local companies.

“Historically, inbound investors have accounted for around half of all M&A activity in New Zealand. If those offshore players have strong cash reserves – coupled with the low dollar here – we can expect increased foreign investment in 2016.”

As to which countries could be most active here, KPMG research shows Canada, China and USA have accounted for the majority of offshore investment in the last two years. Canada has been responsible for around 22% of foreign direct investment by revenue, followed by China at 14% and USA at 13%.

In addition, McKay believes Japan is “a market to watch”.

“Due to the flat Japanese economy, an increasing number of large Japanese corporates are looking to grow their offshore revenues. KPMG was involved in the sale of two large New Zealand businesses to the Japanese recently, and we’re often seeing large Japanese corporates stating publicly that investing offshore is a core strategic objective to diversify earnings.”

Another trend reported in the latest M&A Predictor is the level of sector consolidation. Three of the notable industries have been the manuka honey sector (where several established players are competing to secure honey supply); private hospital and aged care (where new foreign entrants have recently entered with a clear objective of making future acquisitions); and the vocational education space (where the private equity players are seeing bolt-on acquisition opportunities).

“We’re also aware of two other consolidation opportunities being assembled albeit in early stages” says McKay.

KPMG also reports that Australian private equity firms continue to be active here.

“A number of Australian funds have recently raised new capital, and we’ve been advised on several occasions this year they are targeting to allocate a greater proportion to New Zealand than previously,” says McKay.

“This is partly to capitalise on the fact several of the New Zealand funds are currently more focused on exits, portfolio improvement opportunities and fund raising this year; as opposed to new buy-out opportunities.”

“We’re also noticing funds like ACC and NZ Super investing in resources, and being particularly active in their search for private investment opportunities.”
 

• In New Zealand, market confidence is up 1% since December 2014; while capacity (based on net debt/EDBITDA) is expected to be down 1% by December 2016.

• Research by KPMG International is predicting strong activity in many mature Western economies, driven by healthy balance sheets and strong liquidity in their debt markets. Capacity in Africa and the Middle East is also high, at 19%.

• Local IPO activity continues to be subdued, given the recent volatility in New Zealand equity markets and a recent fall in valuation multiples. In theory, a quiet IPO market will pave the way for more M&A transaction volume.

• Australian private equity players are showing greater interest in New Zealand companies than they have historically; with particular interest in quality $50m-$200m businesses.

Download and read the full M&A Predictor: Issue 8.

Nick McKay
Director, Deal Advisory – Mergers & Acquisitions
+64 9 363 3638
022 042 9863
nmckay@kpmg.co.nz

Alexandra James
Marketing and Communications Manager
+64 9 363 3634
+64 021 822 539
alexandrajames@kpmg.co.nz