Signals point to strong offshore investor interest, says KPMG
A buoyant global mergers and acquisitions (M) market – coupled with a weakened New Zealand dollar - is likely to attract higher levels of offshore investment here
in 2016, according to KPMG’s latest M Predictor.
The March 2016 edition shows the predicted appetite and capacity for deal-making among New Zealand companies is looking
modest; with appetite up just 1% and capacity down 1%. In comparison, global companies are showing a 13% rise in
capacity (measured by net debt to EBITDA).
KPMG’s Director of Mergers & Acquisitions, Nick McKay, says this will likely result in foreign investors and institutions taking a stronger interest
in our local companies.
“Historically, inbound investors have accounted for around half of all M activity in New Zealand. If those offshore players have strong cash reserves – coupled with the low dollar here – we
can expect increased foreign investment in 2016.”
As to which countries could be most active here, KPMG research shows Canada, China and USA have accounted for the
majority of offshore investment in the last two years. Canada has been responsible for around 22% of foreign direct
investment by revenue, followed by China at 14% and USA at 13%.
In addition, McKay believes Japan is “a market to watch”.
“Due to the flat Japanese economy, an increasing number of large Japanese corporates are looking to grow their offshore
revenues. KPMG was involved in the sale of two large New Zealand businesses to the Japanese recently, and we’re often
seeing large Japanese corporates stating publicly that investing offshore is a core strategic objective to diversify
earnings.”
Another trend reported in the latest M Predictor is the level of sector consolidation. Three of the notable industries have been the manuka honey sector
(where several established players are competing to secure honey supply); private hospital and aged care (where new
foreign entrants have recently entered with a clear objective of making future acquisitions); and the vocational
education space (where the private equity players are seeing bolt-on acquisition opportunities).
“We’re also aware of two other consolidation opportunities being assembled albeit in early stages” says McKay.
KPMG also reports that Australian private equity firms continue to be active here.
“A number of Australian funds have recently raised new capital, and we’ve been advised on several occasions this year
they are targeting to allocate a greater proportion to New Zealand than previously,” says McKay.
“This is partly to capitalise on the fact several of the New Zealand funds are currently more focused on exits,
portfolio improvement opportunities and fund raising this year; as opposed to new buy-out opportunities.”
“We’re also noticing funds like ACC and NZ Super investing in resources, and being particularly active in their search
for private investment opportunities.”
Other key findings from KPMG’s March 2016 M Predictor:
• In New Zealand, market confidence is up 1% since December 2014; while capacity (based on net debt/EDBITDA) is expected
to be down 1% by December 2016.
• Research by KPMG International is predicting strong activity in many mature Western economies, driven by healthy balance
sheets and strong liquidity in their debt markets. Capacity in Africa and the Middle East is also high, at 19%.
• Local IPO activity continues to be subdued, given the recent volatility in New Zealand equity markets and a recent fall
in valuation multiples. In theory, a quiet IPO market will pave the way for more M transaction volume.
• Australian private equity players are showing greater interest in New Zealand companies than they have historically;
with particular interest in quality $50m-$200m businesses.
ENDS