HOW WE’RE SEEING IT

Ongoing cross-border activity reflects that New Zealand is an attractive place for overseas corporates and investors to deploy capital, given our strong domestic economy and relative stability in a time of geopolitical uncertainty. — Jonathan Wilde, Direc

Jeremy Williamson, Director, Investment Banking, Deutsche Craigs

Overall, New Zealand companies are performing well, highlighted in the latest reporting season where 62 per cent of companies upgraded their FY17 earnings, which compares favourably to Australia where 54 per cent upgraded.

Despite this, average earnings growth for 2017 slipped 30 points to 5.8 per cent, potentially pointing to a slowdown in the earnings cycle and looming margin pressure.

While the tone of most executives we talk to is upbeat, some with domestic-orientated business are beginning to wonder whether this may be as good as it gets in the medium term.

In terms of deal volume, we are more bullish on the IPO market looking forward this year. This is a turnaround from this time last year when just about any equity capital markets practitioner would have acknowledged the cupboard was looking bare.

The investor demand side of the equation has always been there and has, if anything, got stronger, driven by strong fund inflows and a tilt towards stocks that deliver both growth and yield.

The key change we are seeing is that vendors with quality assets are now more willing to bring these to public markets and we think that is good for both institutional and retail investors alike.

Jonathan Wilde, Director, Investment Banking, Deutsche Craigs

2016 represented another strong year of merger and acquisition (M&A) activity in New Zealand, albeit slightly lower than 2015, and we expect this momentum to continue into 2017.

Domestic fund raising activity is at near record levels, with more than $1 billion in new capital committed by New Zealand private equity funds in 2016. This is anticipated to help drive ongoing transaction volumes, particularly in the mid-market space.

Whilst it is a recurring theme, crossborder M&A activity is expected to continue, including increased attention from Australian private equity funds looking across the Tasman and inbound activity from China (despite capital controls) likely to remain.

Interestingly, the latter has evolved from a traditional focus on agriculture to a more diversified sector approach, which we saw with our involvement on the announced sale of UDC Finance to HNA Group for $660 million.

Ongoing cross-border activity reflects that New Zealand is an attractive place for overseas corporates and investors to deploy capital, given our strong domestic economy and relative stability in a time of geopolitical uncertainty.

It also highlights the role of the Overseas Investment Office (OIO) and the need to make the OIO application process as efficient as possible.

David McCallum, Director, Investment Banking, Deutsche Craigs

2016 was a very strong year for issuance with corporates raising in the vicinity of $2.4 billion from the public debt markets — the highest since 2009.

One notable aspect of last year’s issuance (which has continued this year) is that every issuer was able to take advantage of the regulatory changes — either the same quoted class exclusion or the simplified product disclosure statement — implemented by MBIE through the Financial Markets Conduct Act (FMCA) to encourage capital markets activity. Without doubt this has been a great success that is benefitting issuers (through better volume and pricing outcomes) and also investors.

Retail investors in particular have benefited from gaining access to a number of high quality investment opportunities that would undoubtedly have been denied them under the old regulatory regime.

Moreover, we expect to see a number of new issuers who have seen the benefits of the new rules and will enter the market this year.

In terms of current activity, while the first few months have been relatively quiet, we expect activity to pick up over the next few months. Recent announcements by Genesis Energy and Goodman Property Trust are a sign of things to come.