Uncertainty slows M&A activity
The continued uncertainty in Europe impacted on the number of mergers and acquisitions (M&As) in Asia during the first half of 2012.
They were valued at $139.4 billion, a 15.1 percent drop on the previous year half, which was valued at $165 billion, according to Mergermarket, one of the world’s leading M&A analytical services.
The data show a slight increase in M&A activities in the second quarter at $71.1 billion, up 3 percent on the first quarter where they totalled $68.3 billion, which was in line with the global trend.
Globally, the free fall in M&A was temporarily halted in the second quarter. The number of deals in this phase totaled $494.9 billion, up 13.9 percent on the first quarter ($434.6 billion). It reversed what analysts call a “seemingly terminal decline that had seen five previous quarters of consecutive falls in the global total”.
China has seen its M&A activity in terms of volume fall 35 percent in the first half compared with the same period last year, according to Lawrence Chia, the head of Deloitte China M&A Services.
“That includes outbound M&A by Chinese companies, domestic M&A and foreign companies acquiring a stake in the China story,” Chia tells China Daily Asia Weekly.
“It is basically inbound and domestic M&A activity that has taken the biggest hit.”
During the first half of the year, inbound M&A saw 59 deals worth $5.57 billion compared with 120 deals valued at $11.67 billion during the same period last year, Chia says.
Domestically, there were 231 deals worth $57.9 billion in the first half of the year compared with 353 deals worth $55.45 billion for the same period last year.
On the outbound side, he says China is doing okay with 83 deals worth $21 billion during the first half of the year. The same period last year saw 73 deals worth $18.6 billion.
Foreign M&As in China peaked around the middle of last year and have been falling off ever since.
However, Chia says despite the continued economic uncertainty in Europe, the Chinese economy is doing reasonably well.
“I think a lot of people wanting to invest in China through M&As have decided to sit it out until the global economic climate improves,” he remarks.
“But the story is different when you talk about outbound M&As. A lot of Chinese companies are cash rich and want to develop abroad. They don’t have financial ties to European banks and have money to spend.”
Around Asia, M&A activity was mixed during the first half of the year.
In Australia, M&A activity was down 51.4 percent at $45 billion compared with the same period last year — the weakest six months since 2009, according to The Australian newspaper.
The report says the average deal size fell to $99 million from $178 million while outbound activity was down 79.2 percent.
Domestic M&A were down 71 percent as “the European debt crisis, tepid US recovery and a slowdown in China keeps companies on the sidelines”.
A recent Citi research report says rising fuel costs and competition from low-cost rivals is pushing premium airlines in Asia to consolidate, which will lead to a spurt in M&A activity in the sector.
“These recently emerging headwinds constitute a ‘new normal’ operating environment for Asian carriers, to which they need to respond and adapt,” the report says.
“Forming operating agreements and code-sharing partnerships may be precursors to cross-border M&A activities once both parties become familiar with each other.”
Air China, Cathay Pacific, Japanese All Nippon Airways, Philippine San Miguel (which owns a 40 percent stake in Philippine Airlines) and Singapore Airlines are some of the firms that could potentially buy and sell stakes or even merge with other airlines.
Within the region there has been an increase in M&A activity with China’s State-owned CNOOC Ltd agreeing to buy Canadian oil producer Nexen for $15.1 billion and Dutch brewer Heineken making a $4.1 billion bid for Singaporean firm Fraser and Neave’s 40 percent stake in Asia Pacific Breweries.
A report in the Wall Street Journal recently says Southeast Asian companies are speeding up their global ambitions, with takeover deals at record volumes and more than double the pace of last year.
“Buoyed by strong growth and robust balance sheets, Southeast Asian companies are aggressively pursuing energy, financial and retail firms worldwide,” the report says.
“A trend that took off five years ago has accelerated as the European debt crisis has made many assets cheaper.”
While the overall Asia deal volume remains almost flat, cross-border acquisitions announced by companies in the Southeast Asian region reached a record $26.2 billion, excluding purchases by the region’s sovereign-wealth funds.
That is more than double the $10.9 billion this time last year.
