2018 was a good year for M&A activity, both globally and in New Zealand, with strong demand from cashed up buyers and generally benign economic conditions providing a tail wind. The outlook for this year is for continuing high buyer interest, buoyed by the opportunity to obtain high-value acquisitions in a slightly less seller-friendly market.
But concerns around geopolitical and economic volatility, although present last year, are now becoming much more immediate – and this may infect sentiment as the year progresses.
New Zealand’s remoteness makes us an attractive investment destination in turbulent times. Certainly, we are continuing to experience strong demand from cashed up investors, which we expect to be supported by a shift to more buyer friendly deal terms as we reach the peak of the sellers’ market which has prevailed over the past two years.
Therefore, we approach 2019 with optimism but mindful that, with so many potentially destabilising factors in play, some of them capable of producing very large consequences, the prospect of a downturn in M&A volumes and values cannot be ruled out.
Expected trends for 2019:
- Deal activity will remain strong, although we may finally see sentiment dampen later in the year in line with the slowdown happening globally. New Zealand is still likely to outperform the global picture, at least in the first part of the year.
- Buyers in M&A transactions may take back some control as we reach the peak of seller-friendly deal terms.
- The Commerce Commission will increasingly investigate non-notified transactions, particularly given that the perception of greater scrutiny in clearance applications is resulting in more parties choosing not to notify transactions of a kind that the Commission would expect the intending acquirer to apply for clearance.
- The impact of increased complexity of cross-border transactions (thanks to recent legislative amendments) will be offset as New Zealand becomes an increasingly attractive investment destination due to its “safe haven” image in a volatile geopolitical climate.
- Yet, the increased complexity of the overseas investment regime will mean foreign investors require additional support from domestic advisors, particularly in transactions involving residential land, rural land or forestry rights. Increased Comprehensive and Progressive Agreement for Transpacific Partnership (CPTPP) thresholds mean the overseas investment regime has been somewhat liberalised, which conversely may which may result in an easier run for overseas buyers based in certain jurisdictions.
- A trend of increased Ministerial activism, where Ministers became more vocal and involved in relation to overseas investment matters, may continue into 2019.