Adjustments in New Zealand market conditions and government regulation are making their presence felt on law firm workflows
The latest M&A statistics for New Zealand make grim reading for firms who rely on this activity as a key revenue source. Recent figures from Thomson-Reuters show the value of local mid-market deals were down by 85% in the first quarter of this year.
However, Russell McVeagh CEO Gary McDiarmid says there are a few "green shoots" starting to emerge, particularly around distressed M&A. "There is evidence of a fair bit of cash around and buying something often creates the need to sell something else," he says.
While activity is clearly depressed, firms are reporting a surprisingly steady flow of work, perhaps driven by overseas investment. Buddle Findlay started the year by advising on two major transactions - Suntory's NZ$1.4bn acquisition of Frucor Beverages and Daiken's purchase of Carter Holt Harvey's Rangiora MDF plant - both, perhaps not coincidentally, involving Japanese buyers. "What this demonstrates is that there is money around and people willing to spend it," says Peter Chemis, Buddle Findlay's national chairman.
As with Australia, foreign investment can be a emotive issue, but there seems to have been a change of political heart. John Key's National Party government, which came to power last November, is reviewing the Overseas Investment Act with the idea of creating more avenues to encourage foreign investment. A technical reference group - which includes lawyers from Chapman Tripp, Simpson Grierson, Russell McVeagh, Minter Ellison Rudd Watts and Bell Gully - is advising on the review. This step is seen by some as a considerable change from the previous government's position on foreign investment and an indication of a more welcoming stance. Indeed, the Clark government's intervention in last year's NZ$1.7bn proposed stake acquisition by the Canada Pension Plan Investment Board in Auckland International Airport has not been quickly forgotten, with some lawyers believing that New Zealand's international reputation has suffered.
Participation on the technical reference group was by government invitation only, but some firms have taken a more activist role. Chapman Tripp recently proposed changes to tax provisions outlined in New Zealand's Portfolio Investment Entity (PIE) rules, part of a broader strategy to pursue what managing partner Andrew Poole describes as "thought leadership" in the market and to work alongside the business community to achieve legislative reform.
New playing field
The New Zealand Government is forging ahead with a radical plan to replace Auckland's seven local authorities with a single region-wide body. It is a move that has significant ramifications for firms and particularly Simpson Grierson, which has dominated the local government market and currently advises many of the local authorities which face the axe. "We expect the new entity to test the market and we're not taking anything for granted," says Simpson Grierson chairman Rob Fisher. "That said, given our considerable experience we believe we're well placed to continue providing services to the new council." Fisher concedes that the volume of local government work may well decline as a result of the amalgamation. "Certainly the rate payers would be hoping for cost savings, and that would include savings on legal spending," he says. Simpson Grierson will look to balance any loss of workflow with local government work from outside of Auckland, including from both Christchurch and New Plymouth.
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