M&A market attractive to Baby Boomers

MEDIA RELEASE – 8th September 2014

M&A market attractive to Baby Boomers

KPMG M&A Predictor

Embargoed until 6.00am Monday 8th September 2014

Market conditions are now ripe for Baby Boomers who are looking to sell their businesses, according to KPMG New Zealand’s latest M&A Predictor.

The latest indicators continue their upward positive trend – with a strong rise in predicted earnings, and a healthy corporate appetite for deals.

According to Ian Thursfield, KPMG NZ’s Head of Mergers and Acquisitions, the current opportunities are particularly strong for larger privately-owned businesses. This is because higher sale prices are starting to drive divestment activity in this market.

“For years there’s been a lot of talk around the pipeline of Baby Boomers and the expected wave of succession-based sales,” says Thursfield.

“But the reality is that people have been hanging on to their businesses longer. What we’re now seeing, finally, is that strong activity and prices are drawing some of these people out. Prices are now at comparable levels to 10 years ago, and business owners are becoming more inclined to sell into this market.”

Ian Thursfield says this trend is likely to be welcomed by New Zealand-based investors.

“Many investors are still citing the lack of ‘fresh opportunities’ as the biggest obstacle to deploying capital. Given the positive confidence and increase in capacity to transaction, we expect New Zealand M&A interest to remain strong.”

In other results from the latest M&A Predictor, domestic take-over activity has also been fairly buoyant in the past six months, which is in keeping with the US trend. KPMG has been involved in two recent capital markets transactions – namely Dorchester and Acurity Health Group

Ian Thursfield says the upcoming election is not expected to have a major impact on the M&A market; albeit the mega-cap deals and IPO activity are expected to slow until the new Government is formed.

“It goes without saying that any transaction requiring OIO (Overseas Investment Office) approval is likely to be contentious in the pre-election period.”

KPMG New Zealand’s March 2014 M&A Predictor found:
• Profit expectations for NZ’s largest companies increased by 18% since December 2013.
• Global debt to EBITDA ratios (an inverse barometer for capacity), are expected to fall around 13% over the next 12 months. This will further underpin the large cash reserves and low gearing which is supportive of M&A activity.
• New Zealand completed deal volumes have been steady – with an April spike in total deal value influenced by Danone’s acquisition of Sutton Group, and Oji/INCJ’s acquisition of Carter Holt Harvey Pulp and Paper.

About KPMG’s M&A Predictor
The Predictor is a forward-looking tool, published every six months, that helps our clients consider trends and expectations in merger and acquisition (M&A) activity. By tracking important analyst indicators up to 12 months forward, it examines the appetite and capacity for M&A deals. The rise or fall of forward price to earnings (P/E) ratios offers a good guide to overall market confidence, while net debt to EBITDA (earnings before tax, depreciation and amortisation) ratios help gauge the capacity of NZ firms to fund future acquisitions.

KMPG International also releases a Global M&A Predictor twice a year which provides a similar analysis by sector and country across the globe.

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