2026 M&A outlook – New Zealand insights

Bridging the value gap

Particularly in the lower-to-mid market, earn-outs, contingent payments, and deferred consideration have become the standard bridge for valuation gaps.

For investor sellers these structures remain generally unpopular, with an almost unshakable preference for clean exits persisting. However, for those willing to be flexible, there is opportunity to execute transactions which might not otherwise get over the line.

Although the recent increase in deal volume implies that valuation expectations between buyers and sellers have been converging, the threat of near-term inflation and interest rate rises will once again give buyers pause before proceeding to pay full valuations on completion.

Earn-out purchase price structures in particular are typically heavily negotiated and require careful thought when drafting transaction documentation. Earn-outs are commonly disputed, so it is essential to make sure that they are drafted tightly. Key factors to get right include:

• defining and measuring the earn-out metric (typically EBITDA or revenue, though it can also be non-financial, such as obtaining a key regulatory approval)
• milestones and payment triggers, which to avoid dispute must be unequivocal, and
• the buyer’s obligations regarding management of the acquired business, to protect the seller from the risk of manipulation which could diminish the earn-out. 

Earn-outs introduce additional complexity, but when done right they are a useful tool for parties to close the divide when it comes to price.

Rigorous sell-side deal preparation

For sellers, a challenging exit environment requires disciplined, well-run sales processes to maximise value and minimise execution risk. Long preparation runways (six to 12 months not being unusual) are often required to bring businesses to market, especially for more complex transactions such as corporate carve outs.

Undertaking well-scoped and thorough vendor due diligence (VDD) across legal, tax, financial and commercial workstreams (and other specialty areas in some cases) allows sellers to: 

• address issues proactively rather than reactively during a live deal
• control the narrative on identified risks and issues, and 
• avoid price chips, timetable delays or even deal failure due to unexpected issues that could have been identified and managed earlier in the process.

Although requiring more front-end work, VDD typically results in quicker and more certain deal execution from the point in time that a preferred bidder receives dataroom access. It also gives sellers control over scope, timing and presentation of information and ultimately allows a business to be presented in the best possible light to potential buyers. 

Regulatory tailwinds

In the context of the current Government’s “Going for Growth” agenda, the Overseas Investment Act 2005 (OIA) and the Commerce Act 1986 (Commerce Act) have both been the subject of recent reform. Changes to the OIA are now in force, and Commerce Act reform is progressing through Parliament and expected to pass in the middle of the year.

In particular, the changes to the OIA and the latest Ministerial Directive Letter are very investor friendly. The reform and unambiguous expression of government expectations should materially streamline OIA consent timeframes for transactions which are assessed as posing low risk to New Zealand’s national interest (which will be the large majority).

Proposed Commerce Act changes are more of a mixed bag. The introduction of behavioural undertakings as an acceptable remedy (rather than structural undertakings only) is overdue and a positive step, as it aligns New Zealand with overseas practice and should enable more flexible outcomes in mergers the Commission might otherwise decline. Fortunately, New Zealand's regime remains voluntary and much less onerous than Australia's recently introduced mandatory notification system.

However, other proposed changes will broaden the Commission’s powers (including widened merger prohibitions, call-in powers and strengthened confidentiality protections) without corresponding accountability. Of particular note, the Bill introduces a five-year look-back for serial acquisitions, meaning the Commission can assess the cumulative effect of a pattern of acquisitions – a change squarely aimed at roll-up strategies.

Combined with the Commission's stated increased risk appetite under Chair John Small, deal makers should expect a lower threshold for Commission interest, particularly for acquisitions in concentrated sectors or by repeat acquirers. For more information on the Commerce Act reforms, see our five-part insights series and other publications, or contact one of our Competition experts.

Of note to international investors, New Zealand’s regulatory settings are favourable compared to Australia. Investors active across the ditch will be aware of the criticism regarding the new mandatory ACCC merger control regime, and that FIRB scrutiny has increased. The much-publicised failed takeover of Mayne Pharma neatly encapsulates the difficulties inherent under current Australian regulatory settings. For investment in New Zealand, the local regulatory landscape is a comparatively happy hunting ground. 

Sector preferences

Quality assets in defensive sectors are, as always, highly sought after and we expect this trend to intensify whilst the challenging global environment persists. We continue to see concentrated interest and capital flow into healthcare and energy (particularly solar projects which are consented and ready to build). We are also seeing activity in primary industries and adjacent sectors, professional services, and software businesses with strong international growth stories (especially by software focussed investors).