Mergers & Acquisitions: Apac M&A shrugs off macro threat
Financial institutions deals prominent; Chinese outbound M&A on the rise
The value of Asia Pacific M&A passed $77 billion in the first quarter this year. Companies are taking advantage of opportunities for expansion in domestic markets and across borders. Foreign acquisitions of Asian targets remain at healthy levels, as do takeovers of foreign companies by Asian acquirers.
In Asia the M&A and debt capital markets businesses in most investment banks have been propping up the equity capital markets divisions. ECM is traditionally the leading money earner for banks in Asia and a fall in revenues from it can have a damaging impact on overall investment banking performance.
One of the most eagerly awaited deals is the auction of ING’s Asian life insurance arm. Manulife Financial Corp and Metlife are among companies that have already submitted bids in what might be the largest Asia M&A insurance deal in history. South Korea’s KB Financial is also thought to have submitted a bid for a portion of the business. The eventual acquirer might have to pay more than $7 billion.
Financial institutions deals have been leading the way for M&A in the region. JPMorgan, despite the travails of its chief investment office, continues to pursue its expansion plans for Asia Pacific through acquisitions. The bank recently bought a 19.9% stake in Bridge Trust, a Chinese trust company based in Henan province. Bank of Montreal will take a 20% stake in Cofco Trust, a unit of China’s state-owned agricultural trading house, Cofco. Citigroup bucked the trend, by selling its 2.7% equity stake in Shanghai Pudong Development Bank. The sale will result in an after-tax gain of approximately $349 million.
Loan deals associated with M&A transactions are also in the news. Hong Kong Exchanges and Clearing is borrowing $2 billion to finance a bid for the London Metal Exchange. Deutsche Bank, HSBC and UBS have underwritten the financing.
Leading figures in the M&A business in Asia agree that momentum is strong. One M&A banker says: "The M&A outlook in Asia remains buoyant, with organizations looking to take advantage of the fast-paced growth of the Asian economies. This is in spite of the continuing volatility we are seeing in markets globally and suggests an underlying faith in the Asian growth story."
|Carving up the pie|
|Asia (ex Japan) M&A ranking by volume, 2012 YTD|
Southeast Asia has been a particularly busy hub for merger activity. In Malaysia, RHB Capital, the country’s fifth-largest lender by assets, said it had signed an agreement to buy the investment banking unit of OSK Holdings for $602 million in cash and stock. It is the latest in a raft of deals involving banks from Southeast Asia as they seek to boost their wider regional presence. In April, CIMB, Malaysia’s second-largest bank, bought a majority stake in Philippines Bank of Commerce, having bought the Asia cash equities business of RBS earlier in the year.
In Vietnam, the total value of M&A deals reached $1.5 billion in the first quarter.
Citigroup tops the Dealogic table of M&A advisers for Asia Pacific- ex Japan, advising on 22 deals with a combined deal value of $27.3 billion, ahead of Morgan Stanley with 20 deals valued at $27 billion. Credit Suisse is third with 11 deals worth $22.9 billion and Goldman Sachs fourth with 10 deals worth $22.2 billion. JPMorgan completes the top five with 17 deals valued at $20.4 billon.
Outbound M&A from China has been a theme in recent years and is on the rise.
In 2009, Asia Pacific companies targeted 292 European firms. That number rose to 393 in 2010 and 474 last year. This year, Apac firms have already invested $11.7 billion in 123 European companies and the trend looks set to continue.
Fosun Group, China’s largest privately owned company, has been particularly active recently, with several high-profile deals. In 2010, it bought a 7.1% stake in Club Méditerranée, the France-based resort company, increasing that stake to 10% in 2011.
Other deals have included Sany Heavy Industry, a Chinese construction equipment manufacturer, purchasing 90% of Putzmeister, a German concrete pump maker, for $426 million, and China State Grid’s deal to buy a 25% stake in Portugal’s national electricity grid. Late last year, China Three Gorges Corporation, a state-owned Chinese power company, outbid several others to buy 21% of Energias de Portugal, the country’s dominant power utility.
One analyst said fears among some European companies about the growing influence of China, through acquisitions, were unfounded. "I don’t think this is a case of Chinese companies wanting absolute control over European countries. Many Chinese companies don’t have good brand names and so often look beyond their borders to acquire them."
Chinese thirst for natural resources continues to drive much of the action in the wider region. Within this, the metals and mining sector has been a leading source of M&A activity and China has been particularly involved. Most deals have been domestic and driven by consolidation.
Global M&A in the mining sector fell to $25.3 billion in the first quarter of 2012, down from $31.6 billion in the same period last year, with the number of deals falling to 195 from 297.