In the last two years, the overall regulatory environment for M&A has seen significant change, particularly in relation to Foreign Direct Investment (FDI). The M&A activity over the same time has also meant that there has not been much time for the dust to settle.

Of the key M&A regulators in New Zealand, is the Overseas Investment Office (OIO). And the regime it administers has undergone the most significant change in a compressed timeframe. The heavy volume of M&A activity in 2021 and early 2022 has not allowed for much downtime. To develop and reflect on the interpretation of and process for the new regime.

By way of summary, the last two years have seen the adoption of a new simplified investor and benefits test regulatory. The National Security and Public Order (NSPO) and national interest regimes, mandatory tax disclosures. Various low-risk transaction exemptions, processing timeframes, and many other technical amendments.

Overall, as we have said before, many of the changes have improved the functioning of the OIO regime. Such as the new simplified investor and benefits tests. These have allowed the OIO to be more streamlined and pragmatic in their approach to consent. But there is still work to fine-tune the regime. A particular example, in our view, is the overreach of the national interest regime in relation to private equity and fund.

manager transactions. Where aggregator investment vehicles happen to have unrelated foreign government investors from the same country with small individual holdings collectively going above a 25% threshold. A national interest assessment is required. This incurs substantial additional cost (NZD83,700), and in most cases. The investors involved (passive pension funds, etc) do not warrant that level of scrutiny.

Takeovers Panel

We do not expect to see fundamental changes. Either the Takeovers Code regime or the operation of Schemes of Arrangement in the coming year. Other than to address technicalities identified in past consultations regulatory.

Of interest, is the Panel’s recent commentary on deal protection devices concerning Code companies. While deal protection devices can have a role in eliciting offers (and offers at higher prices). The Panel may have concerns where deal protection devices have the effect of inappropriately reducing the potential for competing transactions.

The Panel has therefore encouraged boards to think carefully before adopting overly restrictive or coercive deal protection devices early in a transaction. Given the current economic climate and the resulting generally depressed asset prices, there is likely to be greater hostile competition for assets. We believe that there is real scope for deal protection devices in the coming year.

Financial Markets Authority

The FMA has a new enforcement focus on ‘greenwashing’ i.e. misleading conduct through overstating the “green” features of a product. This is also the arrival of the climate disclosures regime next year for various significant entities (e.g. listed issuers, large banks, insurers, and investment managers).

We expect “green” due diligence to continue to become a more prominent feature of M&A. Particularly for fund managers considering the FMA’s recent review of integrated financial products. Further, for those regulatory entities caught by the climate-related disclosure regime. There will be significant internal due diligence work to prepare climate records. Identify the information required to prepare disclosures covering governance arrangements, risk management, strategies, and metrics and targets for mitigating and adapting to climate change impacts and verifying the same.