But by the second half of the year, the subprime crisis caused AsiaÆs equity markets to correct, short-term credit to dry up and the bank financing market to tighten. Acquirers dependent on external financing found the cost of raising capital prohibitive and investors less receptive to financing their growth ambitions.
Clifford Chance and FinanceAsia decided to survey those in the know about their prognosis for 2009 and beyond. Our survey was conducted in October and received 250 responses. Our respondents are well-placed to comment on M&A markets: 150 of them, representing 60% of the sample in aggregate, work directly in financial services. The largest category of our respondents, 28%, work in investment banking, while another 19% work in asset management (including private equity and alternative assets) and 13% in commercial banking. The overwhelming majority of our respondents, 82%, are based either in Greater China or in Southeast Asia, including India.
Corroborating the frequently expressed view that Asia will not be as badly affected by the meltdown as Western markets, 68% of our respondents expect cross-border outbound M&A from Asia-Pacific strategic acquirers during the next 12 to 18 months to either increase over the previous year or stay at similar levels. Another 72% expect intra-Asia-Pacific M&A to increase or stay at similar levels.
ôA clear majority [of respondents] see the mid-sized range of between $100 million and $1 billion, as the most active sector of the M&A market," says Jamie Paton, the head of private equity firm Candover in Asia, commenting on the survey results. After all, uncertain environments donÆt create the confidence needed for mega-deals.
At the same time, a majority of respondents, around 60%, expect cross-border inbound M&A from non-Asia-Pacific strategic acquirers to decrease over the previous year. We canÆt say weÆre surprised û companies in Western markets currently have their hands full assessing the impact on their businesses from the recessionary conditions. Looking eastwards for acquisitions is not something we expect them to have too much time for.
ôWe still continue to see inbound activity,ö says Roger Denny, head of M&A Asia at Clifford Chance. ôHowever, with recession looming û if not already underway û in many Western economies and bailouts in the financial services sector, we may actually see an increase in the number of disposals of Asian businesses by Western companies.ö

Mainland China is the country that our respondents expect to be home to the most investors and acquirers next year. This was a dominant theme of Asia-outbound M&A in 2008 as well. Whether Chinese companies continue to be acquisitive in 2009 will depend on a number of things, including how much the economy is impacted by the export slowdown.
ôThis year, we have seen strong strategic cases for China outbound investment, including some of the transactions on which we have advised û the China Oilfield Services acquisition of Oslo-listed Awilco Offshore for $2.5 billion; ChinalcoÆs acquisition of a stake in Rio Tinto; and China Merchants BankÆs takeover of Wing Lung Bank," adds Denny of Clifford Chance.
ôIrrespective of any slowdown in growth in China, I believe the longer term rationale for these types of acquisitions remains, and the correction in the markets could well provide better opportunities for Chinese strategic acquirers,ö he says.
Following China are the Middle East and Japan. Outbound activity from the Middle East went quiet in 2008 following a number of deals in 2007. Some market observers suggest that the sovereign wealth funds (SWFs) based in the region were daunted by the performance of their investments in banks. Among others, the investments by Abu Dhabi Investment Authority in Citi and by Kuwait Investment Authority in Merrill Lynch have not yielded the returns the SWFs may have anticipated.
Other reasons for the slowdown in activity could include the impact of the drop in oil prices on all oil-driven economies. Middle Eastern investors could also be waiting for markets to bottom out further. But our respondents seem confident they will be back in the game soon. Indeed, in October SWFs from Abu Dhabi and Qatar agreed to invest ú5.8 billion ($9.1 billion) in British bank Barclays, which suggests that for the right investments, the appetite is still there.
JapanÆs ascendancy to a top three position is not surprising. Japanese companies have used the last few years to create healthy cash reserves and are backed by a strong banking system. The need to secure future growth has already driven a number of Japanese firms to pursue cross-border deals this year. Japanese liquor majors Suntory and Kirin emerged winners in competitive auctions for Australasian food and beverage businesses this year, driven by precisely these factors.
ôWhile the majority of respondents note that M&A activity will be tougher to execute, many still see Asian companies seeking to adopt a global strategy,ö sums up Paton of Candover.