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Welcome to the latest PwC New Zealand M&A Quarterly Update.
In this edition, we investigate M&A activity in New Zealand for April to June 2024.
We also discuss the M&A outlook for the rest of 2024 and outline the key considerations for businesses preparing for sale.
Deal activity
Deal activity increased in Q2 2024 with 52 deals announced, up from 26 deals in the previous quarter, despite ongoing economic headwinds. Looking ahead, strong buyer and investor interest suggests continued optimism for the future.
The data reveals:
Private equity investors accounted for 17% of the total deals (52 deals) up from 8% (26 deals) in Q1.
48% of deals in Q2 (25 deals) involved domestic buyers, compared to 58% (15 deals) in Q1.
Consumer emerged as the most active sector, accounting for 23% of deal activity (12 deals), followed by Business Services at 17% (9 deals).
Number of deals per quarter 2021 to 2024
In Q2 2024 52 deals were announced
Number of deals by sector and buyer type
Number of deals by country and buyer type
Note:
The data has been filtered to exclude: (i) real estate transactions; (ii) early stage venture capital transactions where size is stated or estimated to be less than $1.5m; (iii) transactions announced but yet to complete; (iv) other transactions where applicable.
Sources: Mergermarket, CapitalIQ, Eikon (3 July 2024)
M&A trends: the mid-year outlook
Watch Rod Harris, Partner, discuss the M&A outlook for the rest of 2024 including how the economic headwinds New Zealand is facing are affecting M&A activity, the latest global trends and the potential impact of AI on investing.
1:52
M&A Q2 Rod Harris
Click on the tabs below to learn more.
There are unquestionably headwinds in the market; however New Zealand transaction volumes for Q2 2024 were significantly higher than the same period last year.
Notable transactions for the quarter included FirstCape, Northland Waste, Wet & Forget, Habit Group, Nelson Petroleum Distributors (NPD), SealesWinslow and Steelmasters Group. PwC New Zealand’s Corporate Finance team were delighted to be involved in five of these transactions.
Activity this quarter saw a number of New Zealand and Australian private equity (PE) investors deploy capital into new deals. This rebound in PE activity was expected given the record level of PE and venture capital (VC). It is now at A$65.5bn assets under management (AIC). Undoubtedly, these transactions are a positive boost for the local investment teams - congratulations to all those involved.
The more sobering news is that GDP growth is anaemic at best, despite a strong period of immigration. The impact of inflation, higher interest rates, public and private sector cutbacks is definitely starting to have a real impact. This is reflected in the ANZ-Roy Morgan NZ Consumer Confidence rating which was at 83 versus a 20-year average of 114 (i.e. declining real GDP per capita is clearly hurting) in June 2024. Our sense is that pressure will need to ease on households and businesses in the near term to avoid an overcorrection and maintain a soft landing.
Relative to last year, we are seeing a steady increase in enquiries from vendors and investors. We are also witnessing strong demand from business owners seeking pragmatic commercial advice on strategic options and growth given continued uncertainty.
PwC recently released the 2024 Mid-Year Outlook: Global M&A Trends in Private Capital report.
The report headline was “In the world of private capital, pressure for dealmaking continues to build, despite economic uncertainty and continuing valuation gaps”. While this description relates to a global perspective, it is also highly relevant to New Zealand.
A further theme is that we’re seeing a different approach to deals. To be successful, investors need an investment model that has something unique or transformative. That unique factor can be sector insight/expertise, global relationships, shear scale or something else. As commercial advisors, we are working with our clients to develop that “investment angle” or “thesis” to achieve the best outcome.
Traditionally investors have favoured four sectors - healthcare, education, business services and technology. Globally energy transition, private credit, infrastructure and insurance stand out as also being in demand.
To cater for these different asset classes and to differentiate investment strategies, private capital providers are increasingly establishing specialised funds targeting investment types and/or sectors including:
growth funds seeking high growth opportunities
minority only funds (i.e. shareholdings up to 50%)
private debt funds (providing non-bank senior and mezzanine debt)
infrastructure funds (and/or hybrids such as coreplus investing)
energy transition/ESG
patient capital funds targeting lower growth sectors and/or cyclical industries.
For business owners, the global private capital landscape is more complex than ever and these funds commonly view New Zealand as a good investment destination. Moreover, they are regularly hitting local shores seeking new opportunities. Read more in the Australian Private Capital Market Yearbook 2024.
We are right at the start of the AI journey, particularly generative AI. The evolution will be fascinating to watch and embracing change early provides a better chance of “being on the bus” rather than being left chasing it.
Although generative AI is still in the early stages, its impact on business and society is increasingly significant. It is widely expected that over the next decade the impact on business models and wider society will be even greater than that of the internet during its emergence. This will require companies to reevaluate their strategies, business models, markets and competitors. The transactions created by all this movement could range from traditional M&A to partnerships, alliances and other innovative relationships we have not previously seen.
Tangible real world examples are still emerging, but generative AI as a tool in knowledge-based industries (e.g. professional services) is particularly evident. The process of drafting documents or plans will be shortracked and many elements of customisation for clients will progressively follow.
For more information on the impact of AI on business please contact Scott McLiver who leads PwC New Zealand’s Generative AI practice and the firm’s capability across Asia Pacific.
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By Rod Harris, Partner, PwC New Zealand
Preparing for sale: key considerations
How can a business best prepare for a sale and how far in advance does the work need to happen?
Watch Damian Tuck, Partner in our Private Business team, discuss the essential steps to ensure a business is ready for a successful transaction and learn how early and thorough preparation can make all the difference.
1:20
M&A Q2 Damian Tuck
Click on the tabs below to learn more.
The Private Business team works with a wide variety of clients spanning the vast majority of sectors. At any one time, our team estimates up to 20% of its client base may be contemplating a transaction of some form in the next 2-3 years. A transaction could include, but is not limited to an acquisition, a capital raise, a partial sale or a full sale.
There is no-one-size-fits all approach to best preparing for sale. However, a common issue is the availability and quality of data allowing comprehensive analysis of the business in a timely manner. In our experience, the data does exist but there are often information gaps or reconciliation variances to overcome in order to get to a robust position that can withstand the scrutiny of potential buyers/investors.
Transaction teams typically require this data to present a compelling story to interested parties and to maximise value. The ability to move quickly through a transaction process preserves momentum and provides buyer/investor confidence which is a crucial factor often overlooked. As a Private Business team, we still hear too many stories of transaction issues emerging which can be easily mitigated if addressed before transaction teams get involved.
Preparation time for a transaction process can vary, but often involves a rapid response due to a third party having made an unsolicited approach. While it's possible to navigate a quick sale, achieving the best outcome typically requires more extensive preparation.
Business owners can be unfamiliar with the true variability (and volatility) of business valuations so having sufficient lead time can help unlock additional value. In the Private Business team, we typically prefer to work with clients 2-3 years before a major transaction, particularly those targeting a full sale. During this period, we work closely with clients to provide confidence around executing on growth initiatives and other commercial matters that enhance value. While not the primary intention, preparation can provide secondary benefits such as improved visibility around business performance, growth and strategy.
Based on feedback, clients generally see significant value in commercial advisory services which are focussed around delivering genuine shareholder value. The PwC Private Business team would typically start with an initial meeting to get to know you, your objectives and to establish key facts. The focus is providing clients confidence that our services will be structured and delivered with a strong cost benefit overlay.
We have a strong track record of delivering commercial value to owner-managed and family-run businesses, private equity-backed companies and entrepreneurial start-ups.
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By Damian Tuck, PwC New Zealand Partner
PwC has been the number one mid-market M&A advisor in New Zealand for the last 18 years
How PwC can help
PwC New Zealand’s Corporate Finance and M&A team is the largest in New Zealand, with a proven track record across a diverse range of sectors. With a nationwide presence led by 11 partners, 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.
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Managing Partner, Te Waipounamu and China Business Group Lead, Canterbury, PwC New Zealand
+64 21 616 232
Partner, Deals - Corporate Finance & Infrastructure, Wellington, PwC New Zealand
+64 21 242 6075
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