Magazine article New Zealand Management

Finance and the Economy Series: Mergers and Acquisitions

Magazine article New Zealand Management

Finance and the Economy Series: Mergers and Acquisitions

Article excerpt

Byline: Steve Hart

Merger and acquisition activity in New Zealand is sitting at around 20 percent of its pre-global financial crisis level according to Chas Cable of Deloitte. But it is starting to rise, thanks mainly to Asian investors eyeing up our dairy firms and state-owned power companies.

Cable heads up Deloitte's corporate finance team which handles the company's M&A work. He says that before the GFC there was an elevated level of M&A activity around the world -- driven by easy credit and private equity firms flush with cash.

"A lot of that activity was being driven by private equity firms who tended to inject high levels of gearing into their deals," says Cable. "But as soon as the GFC came along, and the banks brought down the shutters, the availability of debt went away and liquidity went out of the market -- that turned the M&A market off very quickly."

Cable says business owners haven't been selling because they have found it impossible to get the price they want. On the other side of the coin, the banks haven't been lending to finance M&A deals.

"That left private equity (PE) firms to fund M&As, but they have not all been in a position to step in either," says Cable. "Not only are private equity firms not buying new assets, they probably have a bunch of assets that are highly geared. Given the economy, that gearing would have looked highly aggressive.

"A lot of those larger PE firms around the world aren't yet truly back in the market because they are busy mending fences inside their own funds."

In February 2010 there was talk of a recovery in the global economy and hopes of an increase in M&A activity. While there was talk of 'green shoots' the predicted up-turn has been slow to surface.

"I think that while there are some PE firms that have told us they have been quite busy, my general observation is that it hasn't happened as much as we would have predicted a year ago," says Cable.

"However, there are some signs that the M&A market is going to open up. We are starting to get visits again from Australian PE firms, who like to come over and make sure they are being thought of, and that we will show them deals. …

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