Mergers and acquisitions boost likely

Mergers and acquisitions of New Zealand companies are expected to be underpinned by a resurgent interest from foreign investors and iwi in the year ahead.

While public perception of the increasing number of foreign purchases remains emotive, one potential reform could at least leave M&A targets, and their assets, under New Zealand control.

New Zealand's growing economy, combined with low interest rates and an increasing willingness of banks to lend, was translating into an increased corporate appetite for merger and acquisitions (M&A), according to John Strowger, partner at M&A specialists and law firm Chapman Tripp.

''Reports show a healthy and steady boost in deal volumes over the past 12 months, with interest from both listed corporates and private firms looking to expand operations and diversify earnings,'' Mr Strowger said in his M&A report.

In 2014, there was $4.74 billion of new capital raised and 16 new listings added to the NZX, making it the busiest year for floats since 2004.

With the exception of the Government's listing of Genesis Energy, the offerings were a mix of small to mid sized businesses seeking growth capital, entrepreneurial roll up transactions and private equity exits, he said.

''We expect the IPO (initial public offering) pipeline to keep pumping on the back of continued low interest rates and bond yields and a supportive and enabling regulatory environment,'' he said.

He singled out the burgeoning Maori economy and its ''sophisticated post settlement Maori corporations'' and existing Australian private equity firms as increasing their respective activity in M&A.

In the more constrained environment of the post global financial crisis, the presence of Australian companies had been ''subdued'', but was that was starting to change, he said.

''Although acquisitions of the size of Independent Liquor and Yellow Pages, each more than $1 billion, appear unlikely, Australian private equity and the Australian outposts of major American and European firms do appear to be at least ''kicking the tyres'' on New Zealand investment opportunities.

''The coming year may see this interest translate into significant transactions,'' he said.

Similarly, Maori corporations were becoming increasingly active in general M&A, such as Ngai Tahu and Tainui's acquisition of national passenger company Go Bus, for $170 million last year.

In March last year, the Government owned New Zealand Superannuation Fund sold a 2.5% stake in the country's largest forestry business, Kaingaroa Timberlands, to six central North Island iwi.

''We expect in the near term iwi investment vehicles will continue to focus on primary industries, such as fishing and agriculture,'' he said.

However, he noted that as iwi wealth continued to accumulate, they would play an increasingly important role in domestic M&A market.

He said seven years after New Zealand signing its free trade agreement with China, the benefits of investment were ''substantial'', such as the recent 50% stake taken in New Zealand aviation firm Pacific Aerospace by the Beijing General Aviation Group.

Beyond land ownership, Chinese investors were increasingly looking for investment in supply, marketing and manufacturing.

Mr Strowger said reform of the Overseas Investment Office (OIO) screening process for foreign ownership was always ''contentious, particularly if the direction of the reform is toward liberalisation''.

''But most of the emotion in the debate is around land and other natural resources,'' he said.

At no point during the 13 months to the end of January did the OIO have fewer than 60 consent applications in progress; at its October 2014 peak it had 73.

Mr Strowger said reform in the screening process was ''overdue''.

An example would be to treat NZX listed companies, with no more than 49% of foreign ownership, as New Zealand companies, for the purpose of the Overseas Investment Act.

''This has been on the Government's capital capital markets business growth agenda for years now, so it is disappointing that it's still on a ''to do'' list,'' he said.

Recent M&A deals

• $1.03 billion: Japanese consortium Oji Holdings Corp and Innovation Network Corp of Japan buy Carter Holt Harvey's pulp, paper and packaging business.

• $1.34 billion: Wilmar International and First Pacific takeover of Goodman Fielder, Australasia's largest food maker.

• $950 million: Sale of New Zealand business of Transpacific Industries to subsidiary of the Beijing Capital Group.

• $1 billion: Joint venture with Singaporean sovereign wealth fund GIC Real Estate and Scentre Group's 49% stake in five Westfield malls.

• $A900 million: Chinese owned ID Leisure Venture's buying Hoyts Group's New Zealand division.

• $120 million: Australia steelmaker BlueScope Steel's purchase of Fletcher Building's Pacific Steel Group.

Source: Chapman Tripp.

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