what's on the horizon for merger and acquisition (M&A) activity in New Zealand?

MinterEllisonRuddWatts' market leading Corporate team discusses trends and makes predictions for 2023.

This year, we also spoke to several of New Zealand’s leading investment banks and private equity firms to gain their insights on what lies ahead.

2022 was a year of two halves. The first quarters were full throttle, with numerous deals closing in the traditionally quiet months of January, February, and March. In March, new deal activity started to pick-up, and our predicted wave of private exits continued, as more and more owner-operators decided that now was the time to sell. All the signs pointed to deal activity staying extremely high throughout the year.

But as the year wore on, the global outlook deteriorated, inflationary pressures became visible, and the shine came off M&A deals. Transactions started to slow. Due diligence started to take longer as buyers became increasingly cautious. We saw processes start to stall and, in a few cases, fall over.

However, even with this slow down, it was still a busy and buoyant year for M&A activity – and it continues to be strong.

While the incredible highs of 2021 and early 2022 were clearly a peak, deals will definitely be done in 2023 – but they will be hard work and take longer to complete.

Prevailing economic conditions (and more expensive debt) will make things harder. Our clients are also coming to terms with a tighter workforce, increased regulatory requirements and new due diligence requirements – especially the global investment focus on ESG principles.

New Zealand’s general election in October 2023 may also slow activity, as buyers wait and see what happens before making a commitment.

Adding to this is the relatively new overlay of bank conduct issues – with the past bank practice being a very measured and patient approach to borrowers in distress, not cutting it under the ‘conduct’ lens. This requires banks to more actively manage their problem borrowers and distressed deals to emerge.

2023 predictions

In our latest M&A Forecast we predict that 2023 will see:

• technology, healthcare and financial services sectors continuing to lead deal activity.
• an easier road for regulatory approvals, as deal volumes reduce to pre-2021 numbers and regulators have more capacity for processing.
• a hybrid approach to doing deals, using online and in-person methods – with the administrative parts of M&A (due diligence, documentation, closings) remaining online, but with kick-off meetings, premises tours and relationship building between principals reverting to in-person as clients value and prioritise the need to connect with their counterparties.
• distressed deals featuring heavily. With a recession being widely predicted, banks and insolvency specialists are gearing up.
• a return of trade buyers as competitive bidders for assets as rising interest costs and the reduced availability of debt impacts returns for financial investors.
• domestic and Australian private equity funds still in the mix as they still hold plenty of capital that needs to be spent.