Best emerging market M&A house

CREDIT SUISSE: Durability is key to success across all regions

If one word sums up Credit Suisse’s capabilities in emerging markets M&A, it is durable. While other banks’ fortunes have fluctuated, Credit Suisse has delivered a strong record across all regions and in several different countries. Its transactions in Peru, Indonesia and Israel were an important demonstration of the bank’s commitment to the less high profile emerging nations. Still, it’s Credit Suisse’s achievements in Russia, Brazil and China that really stand out. In Russia, the Swiss bank dominates along with Bank of America Merrill Lynch, although Credit Suisse is the leader in the natural resources sector.

One landmark deal was acting as an adviser to steel company Evraz on its acquisition of Ipsco, the north American tubular division of Sweden’s SSAB, and back-to-back sales of certain assets to OAO TMK, another Russian steel company. At $5.75 billion it is the biggest Russian cross-border transaction of the year as well as one of the more complex. Another key Credit Suisse deal was Rusal’s acquisition of 25% plus one share in Norilsk Nickel, which at $13.8 billion is the biggest Russian M&A transaction since 2005.

“There is 50 years-worth of work in Russia in the non-commodities sectors” Fawzi Kyriakos-Saad, Credit Suisse

Although Russia has felt the full force of the financial crisis over the past 12 months, senior bankers at the firm are convinced about the country’s long-term prospects. “This is an economy that is still dependent on commodities. Yet, its consumer sector, banking, tertiary industries, infrastructure – all these need further development. There is 50 years-worth of work,” says Fawzi Kyriakos-Saad, chief executive for Russia at Credit Suisse. In Brazil, the bank acted as adviser to Telemar in its acquisition of Brasil Telecom in a transaction valued at $11.1 billion. It is the biggest-ever telecom M&A transaction in Brazil, creating the country’s largest integrated telecommunications company. One of the hurdles that the participants had to overcome was that the regulatory regime did not allow for one incumbent fixed-line services provider to buy another. While waiting for the restrictions to be lifted, Credit Suisse acted as the purchasing agent.

The bank was also involved in the big pulp-and-paper and mining transactions. In the pulp-and-paper industry it acted as exclusive adviser to three important families in their divestment of their stake in Arapar, the holding company that controls about 28% of the voting shares in Aracruz Celulose, to Votorantim for $1.7 billion. The price paid was a premium of 102% over the price of the company’s non-voting shares on the Bovespa as of August 5. The deal was executed smoothly despite unexpected derivatives losses at Aracruz following poor FX bets.

In the mining sector, Credit Suisse advised MMX, part of Eike Batista’s group, in the sale of assets to Anglo American for $5.5 billion. The transaction entailed a complex corporate restructuring and the creation of a new company called IronX, ultimately bought by Anglo. It was the biggest cross-border transaction involving a Latin American company in 2008.

Antonio Quintella, country head for Brazil at Credit Suisse, says that what distinguishes the bank in Latin America’s biggest economy is its long-standing commitment there. In 1998 it bought local investment bank Garantia and has not looked back since. “We try to be a local bank and yet our clients also get the benefits of a global franchise,” he says. Elsewhere in Latin America, the bank was involved in transactions in Chile, Colombia, Mexico and Peru.

In China, Credit Suisse showed its strength in the technology sector when it helped Focus Media on a $1.4 billion sale of its outdoor digital advertising business to the country’s biggest portal website, Sina. Sina issued 47 million new shares to Focus Media to fund the deal. It is the biggest ever technology M&A transaction in China.

Credit Suisse’s most impressive deal in the region was acting as adviser to Wu Jieh Yee Company, the biggest shareholder of Wing Lung Bank on the $4.7 billion sale of the bank to China Merchants Bank. The purchase price of HK$156.50 a share was a record 76% premium over Wing Lung Bank’s unaffected price. The deal is the biggest Hong Kong bank M&A transaction in the past seven years.

Other impressive deals in Asia include the biggest ever M&A deals in Indonesia and the Philippines, and the largest ever cross-border transactions between the Middle East and Asia, and between Malaysia and Singapore. Vikram Malhotra, co-head of investment banking, Asia-Pacific, says that the outlook for corporates in the region is much brighter than in industrialized economies. “Even if economic growth continues to slow we won’t see as many bankruptcies because balance sheets are generally much stronger,” he says.

In the Middle East, the bank’s deals include advising Qtel in its $2.6 billion acquisition of Pt Indosat, supporting Saudi Arabian jeweller L’Azurde in the sale of a 70% stake in the company to a consortium led by Investcorp, which was the first private-equity transaction in the region since the financial crisis began; and advising Weather II, part of the Naguib Sawiris group, in a partial sale of its stake in Weather Investments for $1.7 billion to Apax Partners.