In Asia Pacific, debt capital markets have continued to fly and equity capital markets show intermittent signs of life, but M&A was on course, late in 2013, for its worst year since 2009.
Announced M&A activity for the region was expected to struggle to reach the $500 billion mark by the end of the year, an underwhelming number for deal-hungry bankers. The fall is mainly the result of a slowdown in the energy and raw materials sectors. According to preliminary data, there will be a 3.3% drop in the value of deals, from last years $527.5 billion.
Indeed, deal-making activity in the region has been on a multi-year downward spiral and the signs are not especially encouraging for the early part of this year.
You can trawl around the various sectors looking for specific reasons why deals are not happening. But at the root of the problem is China, which still sets the tone for the wider region. Stock market volatility has forced many buyers, hungry for Asian assets, to wait and see. Inbound M&A activity is suffering as a result. And Chinas state-owned companies have been keeping a watching brief, leaving a gap in activity levels that the private sector cannot yet fill.
It is hoped that now that the Chinese Third Plenum is out of the way and future government policy is (if only a little) clearer, M&A activity will come roaring back this year. But that hope might have to endure a tough start to the year, with changes in Chinese regulation notoriously slow to come into effect.
New rules governing M&A policy cannot come quickly enough for bankers in the region. They often talk of their frustration at the regulatory framework, particularly in China, saying that opportunities are passing by because regulation seems to be aimed not at supporting activity, but at stifling it.
Better news at least seems to be on the horizon. Banking sources say Chinas securities regulator is set toliberalize the rules governing M&A of listed companies. The rules are thought to be aimed at encouraging the use of preferred shares and M&A funds for investments. They are also said to be designed to make M&A deals more transparent, reducing the administrative approvals required and make taxation rules on deals clearer.
Although doubts about China as a destination for western companies remain, the globalization of China in the form of outbound activity continues apace. Private equity firm A Capitals Dragon Index, a quarterly indicator of the globalization of the Chinese economy, is on the rise. And M&A deals accounted for 57% of all Chinese outbound investment for the first nine months of last year, up from $34.3 billion in 2012.
This, though, is not much good to the M&A bankers of Asia Pacific, who in many cases are struggling to justify their existence because of moribund conditions within the region, while their colleagues overseas often take the spoils for deals done by Asian companies abroad. China must not only talk a good game about softening its stance on deals, but put the changes into practice quickly to spark an M&A recovery sooner rather than later.