Good times have a few years left to go

By Nick Stride

Friday 17th September 2004

Investment bankers are looking forward to bonus time this year and are expecting the good times to roll on.

A horde of acquisitions and divestments, takeovers and sharemarket floats kept banks small and large busy in the first half and a number of large deals have already been announced for the second half.

In addition, bankers report that deals that haven't yet become public suggest the pipeline will remain full well into 2005.

"I'm confident 2005 will be as good as 2004," ABN Amro investment banking director Guy Williams said.

Mark Averill, a partner in PricewaterhouseCoopers' mergers and acquisitions team, agrees.

"It's evident there is less of a value gap between vendors and purchasers than in recent years, leading to a greater number of transactions being completed," he said.

Deutsche Bank chief executive Brett Shepherd is a little more cautious.

"There are a few things we're working on that will lead to sizeable transactions but no more than usual."

His caution is understandable. So far this year Deutsche has advised on deals worth $5.8 billion.

A common theme among the larger deals is that almost all have had a cross-border element as New Zealand companies expand overseas and foreign companies build their local bases.

Some have gone both ways. Carter Holt Harvey sold its tissues division for $1 billion and spent $US134 million ($206 million) buying Plantations Timber products in China. It is widely expected to add to the second-half deal flow with a selldown of its forest estate.

The big banks benefited from deals generated by their offices overseas.

For example, Deutsche advised Sweden's Svenska Cellulosa AB on the purchase of Carter Holt Tissues, and Origin Energy on the purchase of 51% of Contact Energy.

First NZ Capital, with strategic partner CSFB, co-advised Sky City Entertainment on the Darwin Casino acquisition and advised WH Smith on the sale of Whitcoulls A&R to PEP.

Cameron & Co partner Steve Greenwood sees a growing role for investment banks in advising private equity investors. Cameron & Co advised Gresham Private Equity on its purchase of Noel Leeming and Bond & Bond.

The majority of activity among the major corporates has been in forestry and energy utilities. With the exception of the Contact sale, there haven't been the huge deals that propped up previous years, such as National Bank last year or UnitedNetworks in 2002.

But deal volumes have been much higher. "No one's complaining," Greenwood said.

Smaller-scale activity has been spread across a broad spectrum of sectors.

For instance, Promina bought insurer Autosure for $68 million in a deal advised by Deutsche.

PWC acted on a range of sales and purchases with undisclosed values, such as the sale of Vavasour Wines to NZ Wine Fund, the sale of HavenCare Hospital Group to Guardian Healthcare, and Canterbury Hospitality's sale of its retail assets to Lion Nathan.

ABN Amro Craigs advised Woosh Wireless on a $36 million capital raising and did a scoping study for Industrial Research on the potential sale of its IRL BioPharm subsidiary.

Deals already announced for the remainder of the year include Tenon's sale of its structural products business, the sale of AGL's stake in NGC, Independent Newspapers' merger with Sky Network Television, Origin Energy's takeover bid for Contact Energy and Prime Infrastructure's takeover bid for Powerco.

Deutsche's Shepherd said a number of international players were looking at New Zealand as an investment destination.

"They like the economy, they like our gross domestic product growth. There's some concern with the political environment but they still see opportunities for investment."

ABN Amro head of equity capital markets Andrew Hirst said, "There is a huge degree of confidence in the boardroom at the moment.

"If commodity prices stay high, if China continues to be strong and there is no exogenous shock, there are a few good years left to go."

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