Asia: Perfect M&A environment awaits kick-off deal

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Asia has all the conditions for an active M&A market. The first-quarter lull looks like breathing space, not a long-term trend.

If you tried to generate the perfect conditions for M&A activity, you would probably end up with something that looks and feels a lot like Asia.

Asian companies are cash rich, ambitious and have access to cheap money. The opportunities for M&A within countries and across borders are obvious. But if you think about global M&A this year, the centre of gravity is very much in the west, with bumper deals including Heinz and Dell grabbing the headlines through their sheer heft. Asia has been a strangely quiet story as far as deal activity is concerned. In the first quarter, M&A volume in Asia Pacific was down by almost a quarter, to its lowest quarterly total in almost four years.

But this looks more like a cyclical pause than a cause for concern. Companies have needed some time to bed down after a flurry of M&A deals in the past couple of years. The first quarter seems to be the time that they have taken a pause.

In the pipeline are several deals that are likely to make the picture for the region’s M&A bankers look far rosier as the year proceeds. Banking M&A in particular looks set to be one of the defining elements of the rest of the year as a growing middle class coupled with high-net-worth clients drive the need for ever more sophisticated banking products, leading to consolidation in the sector.

Pipeline strength notwithstanding, if M&A is to recover from a relatively slow start to the year, the market needs something to spark it into life. This might have already come courtesy of Dhanin Chearavanont, Thailand’s richest man, who has offered $6.6 billion to buy cash-and-carry wholesaler Siam Makro from Dutch firm SHV Holdings. This is, by a stretch, the largest Asia-Pacific M&A deal announced this year and should give the market just the fillip it needs to kick back into top gear.