NZVCA executive director Colin McKinnon

Mid-market investment – into companies with a market capitalisation under $150 million, which makes up the majority of deals in New Zealand – increased from $243 million in 2014 to $284 million in 2015.

The average deal value was $16.7 million, up from $12.8 million in 2014, according to a monitoring report put together by the NZ Venture Capital Association and EY.

Venture and early stage funds invested $62.5 million across 69 deals while total investment value was $346.6 million spread across 86 deals.

IT and software companies attracted the most interest but investment into health and biosciences companies was lower than normal, which was attributed to the challenges of long lead times and large capital requirements needed to commercialise the technology.

Notable deals in 2015 included Pacific Equity Partners buying Manuka Health, Tembusu Partners’ investment in CricHQ, Pencarrow’s investment in Icebreaker, Allegro Private Equity’s acquisition of Carpet Court and Archer Capital’s acquisition of the Aspire2 Group (ed. Three Sixty Capital Partners led the acquisitions for the Aspire2 consolidation project subsequently sold to Archer Capital of Australia).

NZVCA executive director Colin McKinnon tells NBR Radio the market has been steadily increasing in the past 10 years and there has been strong investor interest in new funds.

“The economic environment with low interest rates means investors are keen to find opportunities for a better return. Private equity in New Zealand has consistently shown a better return than public markets over the years and investors want to find a place with funds in New Zealand.”

He says there are a number of new funds open and looking for investors, including Movac and Global from Day One.

While several fund managers have announced intentions to raise new funds this year, there were no new funds raised in 2015 as managers focused on building portfolios or returning capital from successful divestments.

While mid-market investment was up, total activity – including divestment – across all private equity and venture capital was $494.4 million, down from $919.5 million in 2014.

Total divestment was $147.8 million last year, 76% down from $620.3 million in 2014.

This was due to a lack of large buy-out deals last year while in 2014 the figure was bumped up by Pacific Equity Partners’ divestment of Griffin Foods to URC Philippines.

NZVCA chairman Matt Riley says the outlook for New Zealand’s private equity and venture capital market remains positive. “This is a success-oriented industry where the durability of the fund managers is wholly dependent on performance.”

EY partner Brad Wheeler says the high level of mid-market activity last year included international fund managers active in turnaround, and secondary acquisitions from New Zealand owners.

“While new public listings were quiet in 2015 the market for private transactions was resilient, with New Zealand owners and management wanting to see those businesses taken to their next stage.”