Even by New Zealand’s standards 2023 marked a low point in terms of public M&A deal volume.

As the table below shows, there was just USD 314m worth of binding deal announcements last year, versus USD 797m in 2022 and USD 1.9bn in 2021. To be sure, there have not been more than 5 binding deal announcements in any year since 2018.

One major reason for the recent inactivity appears to have been the significant valuation gaps between bidders and sellers. Sixth Street and BGH managed to finally overcome shareholder opposition and complete their protracted NZD 1.3bn take-private of dual-listed church payment company Pushpay in May. But other deals floundered.

In early November NZ broadcaster Sky TV [NZX, ASX:SKT] blamed valuation concerns for aborting a short sale evaluation process after receiving indicative proposals in mid-October. A few days later automated materials handling solution provider Scott Technology [NZX:SCT], which is 53% owned by Brazil’s JBS [BVFM:JBSS3], terminated a five-month-long strategic review saying it would not proceed due to insufficiently priced approaches.

Notably, deals that were agreed came late in the year. On 3 November KKR-backed Bettcher Industries announced its NZD 196.1m (USD 115.5m) roll-up acquisition of MHM Automation and on 14 December South Korea-based Lunit [KOSDAQ: 328130], a medical imaging software company, announced a AUD 301.2m (USD 198.2m) acquisition of New Zealand-based healthcare software company Volpara Health Technologies. 

Those deals came amid a “takeover spree“ for ASX-listed companies and together with other M&A news flow suggest valuation gaps between sellers and bidders are narrowing and the stars realigning for publicly listed M&A in New Zealand.

Tower [ASX:TWR, NZX:TWR]

With the backing of 20% shareholder Bain Capital, insurance business Tower announced a strategic review on 4 December to explore options for its ownership structure. Tempering expectations however Tower recently denied rumors of a sale, adding that it had received no approaches. These developments come after takeover speculation surfaced in July when Pacific International Insurance took a 5.82% stake in the NZD 271.3m (USD 165m) insurance group.

Tower is trading at 0.9x Price-to-Book Value (PBR), last closing at NZD 0.71 on 4 March. At 1x PBR, Tower would be worth NZD 0.8 p/s – the same price at which Bain Capital acquired its stake in early 2018 – representing a 12.7% premium. Previous reports have named Zurich [SWX:ZURN], QBE [ASX:QBE], or Chubb [NYSE:CB] as potential buyers for Tower.

Comvita [NZX:CVT]

Shares of honey producer Comvita have soared more than 33% to-date after it announced it had given due diligence access to a “credible offshore party” after receiving on 22 February an indicative, non-binding proposal at a “significant premium”.

Li Wang and Zhu Guangping, the former Chinese JV partners of Comvita, are its largest shareholders with 12.24%. China Resources Enterprises (CRE), which has a 6.56% stake, was reported in May 2022 to have considered a take-private although Comvita denied it was in any such talks at the time.

Prior to the indicative bid approach, the NZD 167.8m (USD 102.3m) market cap honey maker had seen its shares slump due to depressed sales in China and North America. On the other hand, Comvita’s FY25 EBITDA guidance expects earnings to double to NZD 50m.

Comvita is trading at 10.2x EV/TTM EBITDA of NZD 26.2m, which is well below Australian comparable Clover [ASX:CLV]’s 15.1x EBITDA. At Clover’s trading multiple, Comvita’s valuation would be above AUD 4 apiece – a 74% upside from its last closed price of NZD 2.3 on 4 March.

Last year, Kirin’s [TYO:2503] AUD 1.9bn (USD 1.2bn) acquisition of Australian supplements maker Blackmores was completed at 23.1x EV/TTM EBITDA.

Rakon [NZX:RAK]

Shares in the NZ-based manufacturer of frequency control and timing solutions doubled to NZD 1.3 apiece since 7 December when it said it had received a NZD 1.7 per share non-binding, indicative takeover proposal. The indicative proposal values Rakon at an implied equity of NZD 390.7m (USD 238.2m) or 19.7x EV/TTM EBITDA.

The developments come after Rakon endured an 81.3% drop in EBITDA from its previous interim result.

Rakon has acknowledged that certain shareholders could be aware of the proposal.

Taiwanese electronic parts maker Siward Crystal Technology [TPE:2484] is Rakon’s largest shareholder with a 12.2% stake (at an average cost of NZD 0.22 p/s). Ahuareka Trust (owned by the founding Robinson family) has 11.05%. Individual Robinson family members collectively hold an additional 8.6% stake in Rakon.

Rakon shares have soared over 7x since Siward’s initial 16.6% stake investment in 2017.  Siward’s subsequent sell-down to 12.2% in 2021 suggests it is not behind the approach.

Rakon’s recent launch of products for AI computing and data centers in late January has positioned it favorably within the global AI industry. Its semiconductor chip-based product revenue is expected to grow over 60% for FY24.

Watch the lapsed deals?

With this level of activity could we see revived M&A around Scott Technology and Sky TV? Pacific Equity Partners was reported to be among parties interested in the former whilst PE firms Atairos, Apollo Global Management and Silver Lake, along with strategic Comcast [NASDAQ:CMCSA] have been linked to Sky in the past.