Welcome to the latest PwC New Zealand M&A Quarterly Update.
In this edition, we investigate M&A activity in New Zealand for January to March 2023 quarter and find that despite economic headwinds deal activity remains steady.
We also discuss the benefits of restructuring M&A to preserve and maximise value, and the key financial due diligence questions businesses in Aotearoa need to consider.
New Zealand Q1 2023 deal activity
Strong deal activity continued during the first quarter of 2023 with 54 deals announced, an increase from 45 deals in Q1 2022:
Trade buyers remain significant players in deal flow with 40 deals (74%) announced in Q1.
27 deals (50%) in Q1 involved domestic buyers compared to the 35 deals (55%) announced in Q4 2022.
Financial Services has continued to be the most active sector since Q3 2022, and has been joined by Technology, Media and Telecommunications (TMT) this quarter. This is the first time TMT has ranked as the most active sector since Q2 2022.
Number of deals per quarter 2020 to 2023
In Q1 2023 54 deals were announced.
Number of deals by sector and buyer type for Q1 2023
Number of deals by country and buyer type for Q1 2023
What is restructuring M&A and why does it matter?
Global economic conditions are changing. Businesses are being confronted by increased headwinds associated with the unwind of COVID-19 support and creditors’ changing attitude towards debt arrears (e.g. lenders and IRD).
The restructuring market is evolving with a broader range of solutions now being utilised. One of these is restructuring M&A (RMA), which is increasingly being used to preserve and maximise value.
Watch Stephen White, Partner, discuss what RMA is, when it’s appropriate to use and how it differs from a standard M&A transaction.
Stephen White
Click on the tabs below to learn more.
RMA solutions are applied where there is some form of financial, operational or strategic stress, which needs to be addressed through a structured transaction process. They can be delivered at varying points in the corporate lifecycle. Often they are driven by the need for a liquidity event, but also situations which require specialist restructuring skills to address complex issues (e.g. multi-stakeholder consensual restructuring processes).
Examples of typical situations that may give rise to RMA:
Business underperformance resulting in loss of confidence of secured lenders, where an accelerated M&A process would realise greater value for the creditor compared to other restructuring solutions.
A need for a corporate to quickly deleverage through specific asset disposals, or raise capital in an accelerated time frame.
A need for a shareholder/corporate to quickly dispose of an asset due to changes in the regulatory environment and/or an anticipated industry downturn.
The intention is to generate or preserve value where there is a risk of erosion if no proactive action is taken.
There is a lot of commonality with a standard M&A transaction process, which is one of the many benefits of utilising a RMA process to effect change. A key difference with RMA processes lies in the objectives. For example, value preservation for third party stakeholders (e.g. secured lenders) is often a key priority in stressed or distressed situations.
The RMA approach requires disciplined preparation and marketing, and is often executed under a condensed timetable. While formal restructuring processes may remain relevant, RMA is arguably an option which can deliver superior outcomes in the right circumstances.
A balance of restructuring and core M&A skillsets works well in RMA situations.
Restructuring professionals will understand how different stakeholder groups will respond to a situation, and will be able to use this experience to inform the potential strategies. They can also quantify the ‘counterfactual’ in terms of value flows and recoveries for different stakeholder groups under alternative scenarios.
M&A professionals can supplement this by drawing on significant transaction execution experience across a range of sectors and with a range of different buyer groups.
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By Stephen White, Partner, PwC New Zealand
The restructuring market is evolving with a broader range of solutions now being utilised. One of these is restructuring M&A (RMA), which is increasingly being used to preserve and maximise value.
Due diligence in M&A: What you need to know
We have seen unprecedented demand for due diligence services over the past few years. Despite some headwinds and market volatility, M&A activity has remained strong and due diligence continues to be an essential part of the deal process.
No matter the deal or market segment we’re working on, we ask ourselves the same question - given the current environment, where is the business placed from a competitive and strategic point of view and what is its level of maintainable earnings? This can be difficult to answer as many variables have impacted businesses over the last few years including COVID-19, low interest rates, relatively high levels of construction activity, skilled labour shortages, a focus on infrastructure projects and now a high inflationary environment impacting economic growth and customer demand.
From a diligence perspective - whether we’re supporting a client to buy or sell a business - we’re thinking of the following questions:
How has COVID-19 impacted you?
How do you deal with supply chain and labour concerns?
What does the future hold?
Russell Windsor video
Watch Russell Windsor, Partner, discuss the top financial due diligence questions businesses in Aotearoa need to consider.
Click on the tabs below to learn more.
It’s important that businesses can clearly understand and articulate how they’ve been impacted by COVID-19. Your response can demonstrate your business’ ability to adapt quickly and deal with disruption - did it thrive or dive?
The pandemic brought a number of challenges to businesses such as supply chain constraints and labour shortages. We need to assess how it has dealt with these challenges and if they will cause issues for future growth aspirations.
Businesses also need to be aware of their key revenue and profit drivers. In a period of uncertainty, high inflation and low economic growth, where is your growth coming from and what is happening to the cost base? With cost reduction being a key focus at present (given the high inflation environment), how and where is this expected to impact the business and can it be sustained over the long term?
There has been significant pressure on businesses trying to secure goods from overseas and deal with talent shortages. Understanding how a business has dealt with these dynamics and where it currently stands is important.
For some businesses we are now seeing a replenishment and rebuild of inventory levels given there’s been some easing in supply chain constraints. Being able to articulate this is crucial, along with how this investment is going to be funded. For others, they are now able to secure supply and build extra buffers into their stock holdings. Understanding how this stock will be released is important along with any potential ageing or obsolescence issues.
When it comes to staffing structures and key operating costs, it's important to understand what changes have taken place over the past few years, and where the business is heading. What investment is being made when it comes to talent, technology and digital transformation?
With cost reduction being a key focus at present, how and where is this expected to impact the business and can it be sustained over the long term?
Understanding what a ‘new normal’ looks like, and where the business expects to be in the next 12 - 24 months, is difficult given trading history has been impacted by a number of factors over the last few years, and given the current change and volatility we are seeing in the macro environment. It's important to ensure you have a well articulated, robust and agile 6 - 12 month plan, supported by your latest results and supportable assumptions that align to your strategic objectives.
From a due diligence perspective, we are spending an increasing amount of time with buyers and sellers to understand these trends and to help navigate through the complexity involved.
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By Russell Windsor, Partner, PwC New Zealand
Despite some headwinds and market volatility, M&A activity has remained strong and due diligence continues to be an essential part of the deal process.
How PwC can help
PwC New Zealand’s Corporate Finance and M&A team is the largest in the country, with a proven track record across a diverse range of sectors. We offer a full range of M&A advisory services including divestments, acquisitions, private equity, capital raisings and strategic relationships.
Our links to the global network of PwC firms provides relationships with key global market participants, and our close relationship with our Australian colleagues ensures a comprehensive understanding of the Australasian marketplace.
Our M&A team has been ranked the number one firm for the amount of M&A deals by Thomson Reuters (now Refinitiv) for the last 18 years.
Contact us
Chief Markets Officer and Infrastructure Leader, PwC New Zealand
Tel: +64 21 744 722
Managing Partner, Te Waipounamu and China Business Group Lead, PwC New Zealand
Tel: +64 21 616 232
