New Zealand private equity activity suffers steep drop

Private equity investments in New Zealand fell by more than 90 percent in the first half of 2008, compared to the same period last year.

Total investments in the first half of 2008 in New Zealand dropped to NZ$88 million ($61 million; €41 million) from NZ$1.1 billion invested in the corresponding period last year.

However, the figures for the first six months of 2007 are inflated as a result of the completion of two large deals including the CCMP Capital-led consortium’s buyout of the Yellow Pages Group.

In the first six months of 2008, as was the case in the latter half of 2007, there were no leveraged buyouts or other large buyouts, according to a study released by the New Zealand Private Equity & Venture Capital Association (NZVCA) and Ernst and Young.

Large private equity deals in New Zealand have dried up as funding for big transactions has become difficult to obtain in the current credit environment, the report said.

The venture capital industry made investments worth NZ$23 million in 28 deals in the first half of 2008. This is in contrast with NZ$56 million invested in 29 venture deals in the first half of last year.

Similarly, the number of deals and total volume of investments in the private equity mid-market also declined. In the first half of last year, NZ$132 million was invested in 10 deals, while this time around, only $NZ65 million was invested in just seven mid-market deals.

However, the mid-market segment is less affected by the lack of credit availability, though some participants in the survey said that vendor expectations have failed to fully adjust to the existing credit conditions.

There were three exits in the first half of the year, giving firms' realisations of NZ$4.7 million. In the same period, the report said, there appeared to be an increasing trend for larger private equity funds to make follow on acquisitions of smaller companies through existing portfolio companies.

While it is unlikely that that top-end private equity deal activity will increase significantly in the remainder of the year, the report noted that there was sufficient activity in the venture and mid-market segments to indicate that private equity fundamentals remain strong in the country.

“Current market conditions make for ‘great vintage years’ for those that recognise the stage of the investment cycle we are in. As business owners adjust their valuation expectations, the opportunities to invest will become apparent,” said Franceska Banga, chair of NZCVA.

Investment numbers for the second half of the year are likely to be better. Earlier this month, Direct Capital acquired a 45 percent stake in New Zealand King Salmon, an aquaculture company, for an estimated NZ$30 million. That deal by itself was worth more than a third of all investments in the first half of 2008.