Following on from strong activity in Australia, the private equity market in New Zealand is also rebounding to pre-downturn levels. According to the Ernst & Young and NZVCA Monitor, private equity investment in New Zealand for the first six months of 2010 hit a three-year high at NZ$170m, with mid-sized deals most common, according to the report.
During 2008-09 the private equity firms were very inward looking, and more concerned about improving their current assets than looking for new ones, said Bell Gully partner and head of corporate James Gibson. “The Global Financial Crisis hit hard on the amount of money private equity firms could borrow, but because the banks are lending to them again, the market has reawakened,” he said. The average investment size during the first six months of the year was NZ$8.5m, however, Gibson said the New Zealand market has always been dominated by mid-size deals.
“I think we have many good private companies in New Zealand, but they are mainly small-to-medium sized enterprises. New Zealand has always had a mid-market size private equity deal space, so I don’t think this has changed,” he said. However, just because the majority of companies available are smaller doesn’t mean they can’t be profitable like the bigger multimillion dollar deals, added Gibson. “Private equity houses tend to play in the one particular area; the size of the fund generally dictates what size investments they are looking for,” he said.
Gibson said that the activity in the M&A space this year had been significantly up on last year, but more importantly, there was more certainty in the market. “I think there is a certain level of enthusiasm [in the market] following some of the bigger successful deals in the Australian market,” he said.
While there has been a lot of noise in the Australian market around Asian-based firms investing in agribusiness and food related companies, New Zealand has not seen the same amount of interest in this space. “Australia is still the number one source of private equity activity into New Zealand, but there has been more US, UK and Asian firms looking at the market,” he said.
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