Outbound transactions from China have continued especially in raw materials for example the Sinopec-ONGC Colombian oil fields transaction which was announced very recently. The wash of distressed assets in Korea has also continued although compared to a few years ago, private equity buyers in Korea have taken a back seat. In Taiwan, banking consolidation is inching forward. In India, the corporate sector has been doing outbound M&A û Indian companies have shown they can move extraordinarily fast to get deals done and financed.
What unique challenges have arisen this year?
Hong Kong has been a frustrating market this year. Potentially one of AsiaÆs largest LBOs was derailed due to political concerns. There have been a number of buyout deals in China which have run into difficulties. Managing foreign ownership issues has always been sensitive but it has now come into sharp focus. In Korea, this has been developing over a number of years, now it is percolating to China.
How do you expect transactions to play out across geographies?
I expect intra-Asia deals will continue to dominate the landscape because industries are still very fragmented in Asia. The current wave of consolidation in the US and Europe has kept companies from those geographies busy in their own markets û though the $1.2 billion acquisition of Hsinchu Bank by Standard Chartered (advised by UBS) shows they are continuing to look in Asia. And importantly, the level of fragmentation in Asia is still very high. LetÆs take the example of the banking sector. Korea is to my mind the country which has gone the furthest in cleaning up and building scale in banking. In most other countries there is still a proliferation of sub-scale players who will, sooner or later, consolidate.
The credit card situation in Taiwan has gone from bad to worse through the course of 2006 and may only now be stabilising - this also suggests a wave of further consolidation as further capital will be required. We believe the Korean market will continue to yield sizeable M&A transactions as the return of corporate confidence drives deals. In China, deals will still get done but recent developments have heightened the sensitivity to the time and complexity involved in managing various stakeholders. Indian companies will continue to look outwards. I feel Indian companies bring a high amount of discipline to the transactions they do. They are focused on taking their existing business lines global and capitalising on their competitive advantages.
What are the trends in financing M&A transactions?
Most Asian banks have shown strong liquidity to finance deals. A number of domestic and international banks are also building their lending and credit capabilities.
What are the key differences in approach between financial sponsors and strategic buyers?
Financial sponsors are good at focusing on the important issues in deciding whether or not to bid. Oftentimes for a corporate acquirer, superior knowledge of the target turns into a disadvantage û too many cooks in the kitchen. Small issues can become distracting for corporates while sponsors stay focused on the large issues. Also sponsors do not have attendant concerns about credit ratings and can be more aggressive in taking on leverage.
What broad trends do you predict for 2007?
The infrastructure space will continue to yield interesting opportunities. IÆm defining infrastructure broadly and for example would include the Taiwan cable industry consolidation here. IÆm certainly banking on the fact that there will be more sponsor-driven deals.
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