Over the past month, we’ve received a spike in interest and enquiries from international investors, particularly from Australia. Associate Minister of Finance David Seymour has also highlighted that there were as many foreign direct investment applications in July and August as there were across the six months prior. Although it’s early days, there are positive signs the lean years may be at an end. While the August Official Cash Rate cut was intended to offer relief to inflation, it also served as a signal to buyers that New Zealand businesses might be about to start paying better dividends.

Who’s keen to invest here?

Until recently, only large businesses and cash-rich buyers from Australia, the US, Europe and Southeast Asia had been brave enough to continue acquiring local firms and investing in a recessionary market. Now, the market is swinging back into acquisition mode, with the mid-sized investors who had been hanging back in the previous high-interest-rate market now ready to make a move.

It might be anecdotal, but no sooner had the OCR announcement been made – the Reserve Bank’s first cut in four years – than several enquiries arrived from local investors looking for acquisition opportunities.

It’s less about the interest rate itself than about the confidence this gives that the economy is turning around, and relief that the Reserve Bank has ended its hawkish stance. This can also be seen in the recent ANZ Business Outlook and other recent business opinion polls, which showed the highest level of optimism in years despite ongoing tough conditions. The government’s messages around improving infrastructure, education and the ease of investing in New Zealand also lower uncertainty for overseas investors.

What are investors looking for?

The difficulty is in identifying good businesses to buy. Quality companies with good cash flows are not yet coming to the market in droves. Rather than creating a feeding frenzy just yet, transactions are still taking longer to complete than during the Covid boom. Today’s buyers are less trigger happy. Private equity firms have a relatively low risk tolerance, as they are keen to avoid making a mistake when the global economy remains uncertain.

While start-ups were also a hot property back then, people have realised that the defining factor of a unicorn is that it’s extremely rare. The old pattern of increasingly higher valuations and larger capital raises for start-ups has gone. High-cash-burn opportunities can bite when the cost of capital is high and consumers’ disposable income is wavering.

However, increased interest in investment has brought signs that investors' risk appetite is slowly recovering and more capital could be on the way. Over the next 12 months, it’s likely we’ll see more corporate and private equity investors coming back into the market. The recovery of mum and dad investors could be a couple more years away as they slowly build up confidence in a more stable economy.

What’s the long-term forecast?

Does this mean the golden weather is on its way back, in time for summer?

It depends on how long the forecast is for. While the signs are positive for now, there are concerns the US economy is weakening, with flow-on effects for other money markets over the next 12 months. Longer-term, in many industries, the supply of businesses could flip dramatically, becoming a buyer’s market. Many of New Zealand’s small and medium businesses are currently in the hands of baby boomers, and we are likely to see more businesses hitting the market as they decide to retire in the next 5-10 years.

South Korea, which is experiencing very low fertility rates, is a sign of what we could expect here in 20 years as our population ages. Instead of the much-discussed intergenerational wealth transfer, without a younger generation waiting to take over, wealth destruction is a real concern as older business owners try to cash up for retirement at the same time. Unless there is strong continued interest from overseas investors or migration, we could see the accelerating decline of sunset industries and retirement plans upended.

To counter that, the government appears to be encouraging foreign investment by making it easier to do business in New Zealand. Note the government directives in June to speed up consents for purchases under the Overseas Investment Act, as well as recent moves to lift council restrictions on zoning and building which had created an expensive, insular economy. For instance, the Building (Product Certification) Amendment Bill would require consenting authorities to approve construction materials widely used in other countries, bringing down build costs and enabling large players in the modular housing industry to move here, as they have done in the rest of the world.

While it will take time for regulations to flow through and the market to shift significantly, in the short term private equity firms have been given the mandate they were looking for, putting Kiwi ventures at the top of the shopping list this Christmas at least. At the other end of the scale, large corporations have a very long-term outlook. If the conditions we create now are favourable for the future, we can expect to see interest remain for the long haul.