The bumpy ride continued

In our 2024 M&A Forecast, we noted that deal volumes in 2022 and 2023 had subsided and that 2023 had been a “bumpy and grumpy” ride, with deals taking longer to negotiate and many processes faltering or even falling over completely. We also noted that there was plenty of money to invest but predicted that with so much uncertainty surrounding the global economy, the year would be another rocky one. 2024 did not disappoint.

The first three quarters were exceptionally bumpy 

Deals were completed – with activity up slightly from 2023, reflecting, we think, that global 15% increase. But they continued to drag, with long, protracted due diligence processes and blown out negotiation timetables. Some deals took months to complete with many more stalling or falling over entirely. We read or heard about many businesses ‘coming to market’ but these pronouncements often came to nothing.

Private equity remained active during this time. Notably, Five V’s newly established New Zealand team made its first two investments here in July (Habit Health and OrbitRemit), Pencarrow invested into Pet Direct, Direct Capital invested into Active Refrigeration, Hiway Group and Wet & Forget and Waterman exited Fusion5. However, many of our private equity clients bemoaned a comparative dearth of investment opportunities in the first half of the year.

The ongoing trend towards more buyer-friendly terms continued. With so much economic uncertainty, buyers remained focused on downside protection. Earnouts, deferred payments, extensive warranty and indemnity protection and material adverse change (MAC) clauses remained a feature of many deals. Due diligence was typically extensive. Warranty and indemnity insurance was often used as (with many new insurers entering the New Zealand market) premiums tumbled to much more attractive levels.

While PE (which one of our clients explained is conceptually happy to invest in all cycles) remained active, corporate buyers were more cautious and unless genuinely competitive pressure was brought to bear, seemed content to ‘wait and see’. We have seen one large private company enter its eleventh month of ‘preliminary discussions’ with an international corporate buyer. It’s not hard to see why corporate (particularly international) buyers preferred a ‘wait and see’ approach. There were more than 50 elections around the world in 2024, including in the US and the UK. Commentators noted that dealmakers have waited for some time for clarity on two common bottlenecks for M&A, being monetary policy and regulation. That was clearly the case in the US and the UK, and was arguably the case here in New Zealand as well. Regulation remains a bugbear for dealmakers both here and globally, and inflation (albeit reduced) and high interest rates remained through much of 2024. 

And with multiples and/or earnings down, sellers often preferred a ‘wait and see’ approach as well. That makes sense. Why sell at the bottom of the cycle if you don’t have to? The New Zealand Commerce Commission spoiled the party on a couple of occasions in 2024 – most notably by refusing clearances for the proposed merger of the North Island and South Island Foodstuffs’ businesses and the acquisition of Serato Audio Research Ltd by AlphaTheta Corporation (listen to our podcast on these knock backs here and our article on the competition landscape in 2025 here. While our distressed M&A team dealt with a steady stream of smaller divestments in 2024, there is still no tidal wave of insolvency related M&A. We doubt there ever will be. New Zealand banks remain willing to work with their customers through these difficult times, seemingly preferring long-term relationships over short-term pain.

Our pipeline is certainly looking very full, with many clients having instructed us on anticipated deals kicking-off in early 2025.”

The market heats up

By October and November, most of those 50 plus elections had been decided. With geopolitical certainty restored and interest rates and inflation starting to fall, we have seen a huge increase in activity towards the end of the year. Those of us in the M&A industry often speak of the Christmas rush, as clients push to get deals done before New Zealand decamps to the beach. But this has been a larger than normal uptick. Deals that had been dragging throughout the year suddenly fired up and agreements were reached. In some cases, we saw transactions come out of nowhere and close very quickly. We were involved in a large divestment for one PE client where the deal closed within four weeks of us first being briefed.

This push appears to be reflecting a global trend and seems set to continue throughout 2025. The UK Guardian reported in early January that lawyers in the UK are bracing for the ‘round-the-clock’ work that will be required to service the expected M&A surge due to regulatory changes and the ‘Trump effect’. Our pipeline is certainly looking very full, with many clients having instructed us on anticipated deals kicking-off in early 2025.

And there are significant tailwinds to back up the surge in activity here in New Zealand. The Government is now decided for at least the next two years. Inflation and interest rates have started to fall. In addition, towards the end of last year, the Government announced a series of significant corporate law reforms and an overhaul of our overseas investment laws. Our view is that the majority of these changes are designed to reduce regulatory costs and promote certainty. They should make New Zealand a more attractive place to invest and are largely to be welcomed. See our article which addresses these changes in more detail and what to consider when selling your business to an overseas buyer here.

It is interesting to note that in many cases, the ideal conditions dealmakers hope for have not fully materialised. But with things heading in the right direction, it seems that many buyers have decided to capitalise on current pricing and, as one commentator has put it, ‘trade on hope, rather than to wait for reality’. President Trump has promised less regulation, lower taxes and a generally pro-business stance and that appears to be enough to generate the headline we started this year’s Forecast with.

Given all the tailwinds and a healthy amount of ‘trading on hope’, we think that dealmaking in New Zealand will also increase significantly in 2025. Cautious buyers will still be a feature, as they try to understand the new business environment and the emerging trends. Thorough due diligence will remain paramount and buyers will need to consider new issues when conducting that due diligence. See our article on due diligence for AI driven companies here and the Inland Revenue’s promised increase in compliance work here by way of example. Buyer friendly terms will also continue to be a feature of deals in the next 12 months. But despite the ongoing caution, with the dealmaking environment improving on a month-by-month basis, we are already seeing a large pipeline of activity for 2025 and we expect that to grow. 

All the signs point to a bumper year for the M&A industry. We look forward to seeing you across the table in the year to come!

Hot sectors

New Zealand continues to be an attractive opportunity for international investors (both corporate and private)
with technology, forestry and agriculture, energy, healthcare and financial services continuing to lead the way.
We were involved in several transactions in these sectors including:

Health

• The sale of Habit Health (New Zealand’s largest occupational health, personal welfare and physiotherapy rehabilitation provider) by Livingbridge to Five V Capital.
• Volpara Health Technologies’ sale to Lunit Inc, the South Korea based software-Medical Technology company.

Technology

• Advent Capital’s sale of Flintfox (a leading point of sale software provider) to Enable.
• Waterman Private Capital’s sale of Fusion5 Group Holdings Limited, a fullservice IT business, to Australian private equity firm, BGH Capital.

Financial services

• Entain’s selection as the preferred partner to TAB NZ for a 25-year strategic arrangement.
• Five V Capital’s acquisition of OrbitRemit Ltd, the New Zealand based softwarefinancial technology company engaged with payment processing solutions.
• The merger of Jarden Wealth and JBWere to create FirstCape.

Forestry and agriculture

• Ngāi Tahu’s sale of its West Coast forestry estate (by way of forestry right) to Fiera Comox.
• Investments by ASB, ANZ, BNZ and A2 Milk into AgrizeroNZ, the government backed investment vehicle seeking to get emissions reduction tools into New Zealand’s farmers hands sooner.

We expect to see continued activity in these sectors during 2025 with many deals already being discussed. We also expect to see a continued uptick of M&A activity in the energy sector during 2025. See our thoughts on the renewable energy sector here.