Mergers & Acquisitions: A New Zealand Perspective

Insights from New Zealand M&A leaders across various industries have been captured for the first time as part of Deloitte’s annual Heads of M&A survey. These observations have been aggregated with interviews carried out within the Australian market to help provide an understanding of views on the economy and likely M&A activity over the next 12 months. While there were many similar viewpoints across both geographies, we also saw some distinct differences.

Corporate leaders in both New Zealand and Australia expect to experience challenges over the next 12 months as a result of uncertain economic conditions and a lower growth environment. Reserve Banks in both countries have been increasing interest rates to help curb inflation and this is anticipated to impact asset prices and increase debt servicing costs for businesses and households. Despite this, Australian survey respondents expect the number of deals to increase compared to last year whilst New Zealand respondents expect deal activity to hold broadly constant with 2021.

Overall, New Zealand respondents had a more pessimistic view of the economic outlook and felt that uncertain market conditions will impact their M&A activity. They also expect fewer organic growth opportunities within their existing sectors compared to Australian respondents. This suggests New Zealand corporates may take a more watchful and cautious approach to M&A opportunities in 2022 than their Australian peers.

80% of respondents on both sides of the Tasman viewed valuation as the greatest challenge to M&A success in the current economic environment, followed by the lack of available acquisition targets (55%) and the competitive deal environment (48%). The Deloitte M&A team is starting to see increased instances of valuation gaps between buyers and sellers, which likely includes the impacts of movements in equity capital markets and discount rates, as well as differing views on the impacts of an uncertain economic outlook for target businesses.

These challenges suggest that M&A transactions may take longer to complete in the next 12 months as vendors and purchasers take time to negotiate mutually agreeable terms and purchasers perform due diligence on the relevant commercial considerations.

The views expressed around a lack of available acquisition targets may explain why New Zealand respondents on average indicated a higher likelihood of exploring alternatives to traditional M&A, such as entering alliances and joint venture arrangements, than Australian respondents.

Despite some of the challenges noted, there were many reasons to remain optimistic that corporate M&A activity will remain healthy over the next 12 months, including respondents on both sides of the ditch agreeing that balance sheet capacity, liquidity reserves and access to capital is available for quality M&A targets.