Asian M&A: The Days of Dealmaking are Back

Respondents to a recent survey conducted by Clifford Chance and FinanceAsia are confident M&A from Asia will gain momentum

By Sameera Anand

Our third annual M&A survey confirms what buoyant capital markets are already indicating—that the specter of recession is lifting and the days of dealmaking are back.

Clifford Chance and FinanceAsia in September asked 214 professionals for their views on M&A activity for the next 12 to 18 months. More than half of our respondents, 57%, are employed in the financial services industry. The majority have a direct say on M&A at their firms, while around 45% are in key decision-making roles (managing directors, chief executive officers, partners etc).

As was the trend in earlier years, 46% of our respondents are based in Greater China. Another 27% are based in Southeast Asia, including India, and the balance spread across the world.

Two-thirds of our respondents expect cross-border outbound M&A deals by Asia-Pacific acquirers and intra-Asia Pacific M&A to increase from last year. However—not surprisingly given that Western markets are still grappling with the fallout of the subprime-sparked crisis on their economies—respondents are less bullish on inbound M&A into Asia-Pacific, with 57% expecting it to either decrease on previous years or stay at similar levels.

"The expected influence of Asian corporates on outbound and intra-Asian M&A reflects their growing significance and confidence," said Roger Denny, head of M&A for Asia at Clifford Chance.

The majority of respondents expect deals to be concentrated in the $100 million to $1 billion range with only 20% saying most deals will be less than $100 million.

For the third year in a row our respondents expect Greater China to be home to the majority of acquirers and investors during the forecast period. Indeed, China outbound M&A has dominated newspaper headlines through the year.

"Chinese acquirers are certainly more savvy in approaching deal situations compared to just a few years ago," said Brian Gu, head of Greater China M&A at J.P. Morgan. "At the same time, target companies around the world are viewing Chinese interests as more credible and with a more welcoming attitude."

Natural resources deals into Australia have taken centre stage, with Chinalco's failed attempt to double its stake in Rio Tinto key among them. Chinese buyers have also gone to Africa, Canada and Latin America in their quest to secure supplies of energy and resources.

"Having advised Chinalco in relation to its original stake acquisition in Rio Tinto, it was disappointing to see the outcome on the subsequent deal," said Denny. "To some extent this had an impact on sentiment in the sector for a time, although it seems to have bounced back to some degree."

However, the rest of the pecking order has changed dramatically. Our respondents expect India to be the country that follows China in making investments and acquisitions.

"Indian companies are going to become more acquisitive, as currently restricted sources of debt or equity financing become available again," said Jason Rynbeck, head of advisory investment banking and debt capital markets at Barclays Capital. "There is quite some ambition held by Indian corporates to develop their international expertise."

In third position behind China and India is the US. This suggests our respondents expect US companies to pursue a strategy of investing outside the US to participate in higher growth markets and offset any weakness they may be facing in their home markets.

In the same vein, an overwhelming majority of our respondents, 83%, agreed that western companies will look to Asia for acquisitions, as Asia offers better growth prospects.

Greater China is expected to be the most popular target location for inbound M&A investment, followed by India, mirroring last year's results. Energy and natural resources M&A is expected to continue to dominate with 43% of our respondents forecasting this to be the priority sector for investment, followed by financial services and technology, media and telecommunications.

Business Exchange

Track and share business topics across the Web.