In an interview with FinanceAsia, Andre Hidi, the Toronto-based global head of M&A for BMO Capital Markets, talks about the factors supporting global mergers and acquisitions, how the Canadian government's attitude to oil sands deals changed after Cnooc's acquisition of Nexen and about recent activity in the mining sector.
What are the factors supporting M&A globally?
We have got virtually all the key ingredients for strong global M&A in place right now. Global economic growth has resumed after the global financial crisis in 2008 and picked up a lot quicker than anyone anticipated. While there have been starts and stops and some disappointments in China, overall the high single-digit growth in China is a very strong performance by global standards. If you look at global M&A activity, the strongest correlation is with GDP growth. We are seeing stronger confidence on the part of [chief executive officers] and boards in terms of putting money to work. For leveraged buyouts, credit is plentiful and debt financing is quite cheap by historical standards. The other currency that companies have to make acquisitions — their own stock — is generally decent as well. Volatility has come down a lot from the peaks during the crisis, and when you put all that together it’s a very strong backdrop for M&A activity.
Has there been a pick up in M&A in the China resources space?
We see a strong ongoing interest from Chinese [state-owned enterprises] to participate in mining M&A, in copper in particular. I don’t think every commodity is of interest but copper continues to be. Overall we see a strong dialogue in terms of potential investments continuing abroad. There are challenges though. We advised Cnooc on its $15.1 billion acquisition of Nexen. While the Cnooc deal was approved and closed, there was a change in the Canadian government’s view on oil sands transactions of that size and scale after that. However, it doesn’t mean that other Chinese SOEs won’t be welcomed in smaller scale and other sectors such as metals and mining. We do see continued activity this year and next as the general environment is conducive to M&A activity. Glencore’s pending sale of Las Bambas [copper mine project in Peru], for which we are joint sell-side advisor, is an example of that.
With major mining companies going through restructuring has the access that Chinese SOEs have to cheap funding been a major advantage?
It can be. Financing is very important particularly if the target is large and it is going to be a cash sale, which restricts the number of players. In these situations, it can be a challenge to finance in cash and it’s a challenge we expect Chinese companies to be well positioned to face.
Have you been hiring in Asia as a result of the activity?
We have been adding numbers to the team in the last two to three years but not in a big way.
Have you seen any changes in bidding behaviour among Chinese companies?
I think if we go back six to seven years during my first major trip to Beijing, at that time, there was a lot of interest among Chinese companies in potentially doing M&A abroad but there wasn’t a lot of experience. It is interesting to see how the understanding of M&A, sophistication of parties and experience has increased steadily. While earlier on, Chinese state-owned enterprises were thinking of doing small transactions -- under $1 billion -- over the last two to three years we have seen much larger transactions, such as the Nexen and Las Bambas deals. We have seen an evolution in understanding and comfort levels.
Chinese companies are perceived to be slower to close deals. Has that perception changed?
Going back a few years ago there was always a perception that not just Chinese but most Asian companies were careful and took a longer time to come to a conclusion and, ultimately, transact than North American and European companies. That has been a long-standing perception. There have been pretty clear examples of Asian counter parties closing and closing on schedule and within reasonable time frames. I think that perception is still there to some extent but there have been plenty of counter examples.
