We have advised on over NZ$1 billion of NZ tech company M&A exits in the last 12 months, so we thought it would be interesting to share some trends.

  1. Buyers have money to spend: Buyers who have weathered the impacts of Covid on their business with strong balance sheets are making good use of relatively cheaper costs of capital/debt, with healthy competition among both strategic and financial buyers for NZ tech / SaaS companies – especially companies with strong product teams and global revenue streams.
  1. NZ tech companies continue to be attractive to foreign buyers:
    • No surprises here given NZ’s stable environment, pool of globally minded and talented operators and technologists.
    • As NZ’s Angel and venture capital investment scene matures, there are more and more maturing and quality NZ tech / SaaS companies that have benefited from growth capital and are ripening for exit.
  1. To grow or exit?
    • It’s a dilemma that is very personal and context dependent for each founder and their boards.
    • The ever-present dilemma becomes harder in the current market where both the availability of later stage venture capital investment and M&A interest is stronger than it has ever been for NZ tech / SaaS companies.
    • IPO continue not to be the preferred exit option (but will this change?)
  1. Haven’t met in person; no problem:
    • A sign of the times.
    • Many of the deals we’ve advised on have been between people that have never met in person.
  1. Deals can take time to initiate, but can be signed fast:
    • While many of the transactions we have advised on have been negotiated and signed at breakneck speed, transactions are generally the result of much longer courting processes.
    • We have found that this is typical in a seller-friendly market where sellers are prepared to take some time looking for and getting to know the right buyer before committing to a transaction. Interestingly, we have witnessed an increased focus on cultural alignment when determining the buyer best placed to carry the business forward.
    • Once committed, then speed of execution is key.
    • While deals can be negotiated and signed in relatively short and intense time periods, where the buyer is owned by foreign shareholders it can involve significant time between signing and completion given the nature of NZ’s overseas investment regime.
  1. Strong multiples:
    • NZ tech / SaaS companies are demanding strong revenue multiples. However, these multiples do lag behind the multiples that publicly listed companies are trading at.
    • All things being equal, the differential in multiples that publicly listed companies are trading at versus private company acquisition multiples creates opportunities for listed buyers to arbitrage the difference, creating value buying private companies with revenues at relatively lower multiples.
    • If structured right (and with an element of risk), shareholders exiting NZ tech / SaaS companies can also benefit by taking a mix of cash and stock in a listed buyer on agreeable terms.
    • These market conditions are rewarding for investors who have invested in earlier times where valuations/multiples were not as strong. Such investors are now benefitting from both revenue growth, and the higher multiples currently being paid on revenue versus the multiples they invested at.
  1. Mixed cash/script consideration: Perhaps a feature of relatively more listed company buyers being in the market to buy & strong capital markets in general, but we have seen a move toward sellers being more prepared to accept stock in a listed buyer to help obtain higher exit multiples.
  1. Earn-outs continue to be a feature: Earn-outs continue to be a useful feature for sellers and buyers to share some risk with buyers in return for stronger exit multiples. Earnouts featured in all but two M&A transaction we’ve advised on in the last 12 months.
  1. Employee share option schemes:
    • We have witnessed first-hand how employee share options schemes can distribute wealth to have a meaningful impact on the lives of employees and their families.
    • NZ tech / SaaS companies that implemented employee share option schemes early in their life cycle, or who have achieved significant recent valuation growth, have seen employees benefit significantly from participating in employee share option schemes.
    • Well-designed employee share option schemes can lead to significantly easier transactions to manage when it comes time to exit (and vice versa).
    • NZ’s tax rules could (should) be improved to make employee share schemes more attractive/impactful (tax symmetry between founder and employee shares would be a welcome addition).
  1. Warranty insurance:
    • Warranty insurance continues to be a popular tool for buyers and sellers to manage post-transaction risk.
    • Policies can be implemented quickly and efficiently.
    • The cost of warranty insurance premiums continues to remain competitive (1-2% of policy cover), with buyers and sellers generally agreeable to sharing the cost of premiums.
    • The treatment of insurance policy exclusions/non-insurable risk continues to be a key focus for sellers in developing their transaction strategy and their assessment of competing M&A offers.
  1. Staying in NZ:
    • Foreign buyers generally seem intent on keeping core teams in NZ, and even expanding NZ based-teams for post-acquisition growth.
    • This is a testament to NZ’s tech talent pool and beneficial for the NZ job market and tax base.

Author

Murray Whyte

Murray Whyte

P +64 27 531 3730
E murray.whyte@avid.legal
L View Murray’s LinkedIn profile here

Contacts

Bruno Bordignon

Bruno Bordignon

P +64 4 280 6260
M +64 21 277 6660
E bruno.bordignon@avid.legal
L View Bruno’s LinkedIn profile here

Tony Davis

Tony Davis

P +64 27 312 2782
E tony.davis@avid.legal
View Tony’s LinkedIn profile here

David Clarke

David Clarke

P +64 27 244 5658
E david.clarke@avid.legal