This year has turned out to be a patchy one for M&A deal flow out of Asia, due to a slowdown in China and a cyclical downturn in the mining sector, where most of the large deals are struck.
According to Dealogic, the total value of completed deals from Asia ex-Japan this year is $284 billion, which is 16% lower than the whole of 2012.
“M&A volumes are down this year. One of the primary reasons has been elections in a number of countries, and the leadership change in China, which impacts state-owned enterprise outbound activity,” said Mayooran Elalingam, head of M&A, Asia at Deutsche Bank.
“The slowdown in the global resources sector has also not helped as that is where many of the big deals come from,” he added.
With the exception of Cnooc, which closed its $15.1 billion acquisition of Nexxen this year, Chinese state-owned enterprises have been quiet. The region’s M&A has been led by Japanese acquisitions in Southeast Asia as well as wealthy Thai tycoons such as Dhanin Chearavanont and Charoen Sirivadhanabhakdi, who have made big-ticket acquisitions abroad.
“The private entrepreneur-led outbound M&A is a new theme in Asia as family groups seek to deploy their capital in new markets and businesses especially outside of Asia,” said Elalingam, “We are also seeing some element of diversification from their home markets. The Thai families have made acquisitions abroad for example,” he added.
Li Ka-shing-controlled Hutchison Whampoa’s sale of Parknshop, which was scrapped in favour of a possible listing of AS Watsons, was also seen as an example of the diversification theme, since the group has been growing its exposure to Europe.
While volumes have remained subdued this year, activity is expected to pick up next year, as some political uncertainty has lifted in China.
“There was a lower level of M&A activity out of China earlier this year due to the change in administration, but in recent months there has been a pick-up in dialogues with Chinese state owned corporate clients,” said Colin Banfield, head of M&A Asia Pacific at Citi. “The go-global message is being reaffirmed,” he added.
M&A is the third stool in the investment banking fee pool, but its contribution to the fee pool is lower in Asia than the US or Europe. According to Dealogic, M&A revenues for the year to date contributed to 17% of the region’s investment banking revenue compared to 21% in the US and 27% in Europe.
Similar to equities and debt, M&A fees in the region are generally much lower in Asia than elsewhere. “Compared to the US and Europe, M&A fees are relatively low in Asia,” said Simon Roberts, managing director of recruitment firm Sheffield Haworth. “In Europe and the US, you can earn 3%-4% on a decent M&A deal, but it’s perhaps a struggle to get that in Asia,” he added.
According to Kenji Kimura, global head of M&A at Nomura, fees can vary greatly depending on the complexity of the transaction and the probability of it being successful. However, he says overall fees in Asia lag those in the US. “Generally speaking, fees paid in Asia are substantially lower than the standard Western fees," said Kimura.
Due to the lower fees in the region, boutique firms that would normally have large staffs are relatively slim in Asia. “As a result of fee compression over the past few years in the region, compounded by the lower fee pool available when compared to western markets, M&A boutiques such as Lazard, Rothschild, Greenhill and Moelis have generally had a smaller presence in Asia when compared to the US and Europe where they have sizeable businesses,” said Roberts.
While this year’s volumes may be affected by leadership changes in Asian countries, some feel that the region's appetite for acquisition lags behind globally.
“M&A in Asia punches below its weight,” said one senior M&A banker. “For the rates of growth, the level of activity should be higher than what it is,” he added. According to him, part of the reason is that Asian tycoons are reluctant to sell assets as it is deemed to be a sign of failure while many of the region's SOEs are more risk averse.
