The Deal In Focus: Perspectives From Both Sides Of The Tasman On The M&A Market

Auckland, 19 August 2022 – Following an incredibly active M&A market in 2021, corporate M&A leaders across New Zealand and Australia remain optimistic about deal-making prospects in the next 12 months despite economic uncertainty and geopolitical challenges.

Insights from New Zealand corporate M&A leaders across various industries were captured as part of Deloitte’s Head of M&A Survey 2022 and combined with the sentiments expressed in interviews carried out in the Australian market to provide views on the economy and likely M&A activity over the next 12 months.

Deloitte NZ Financial Advisory Services Leader Richard Dorset said, “While there were many similar viewpoints across both geographies, we also saw some distinct Trans-Tasman differences with New Zealand respondents having a slightly less optimistic view of the economic outlook and felt that uncertain market conditions will likely impact their future M&A activity.

“A lack of available acquisition targets in some sectors appears to be driving New Zealand respondents to consider alternatives to traditional M&A, such as alliances and joint venture arrangements.”

Key survey findings include:

· 83% expect the number of deals to increase or remain stable in the next 12 months, down slightly from 95% in 2021

· 80% believe current economic conditions remain supportive of M&A activity

· 89% are at least moderately confident that credit will be available at favourable conditions

· 80% listed valuations as the greatest challenge to successfully completing M&A deals

· ESG has become an influence in portfolio rebalancing and redesigning, with many M&A leaders re-evaluating or planning to re-evaluate their portfolio to acquire or divest through the lens of ESG

“In New Zealand we’ve started to see an increase in instances of valuation gaps between buyers and sellers, which likely includes the impacts of movements in valuations in equity capital markets and discount rates, as well as differing views on the impacts of an uncertain economic outlook for target businesses,” Mr Dorset said.

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

“However, despite some of the challenges noted, there are many reasons to remain optimistic that corporate M&A activity will remain strong over the next 12 months, including respondents on both sides of the Tasman agreeing that balance sheet capacity, liquidity reserves and access to capital is available for quality M&A targets,” concluded Mr Dorset.

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