M&A survey results

Failed M&A deals set to rise as trade war dents sentiment

Trade tensions and failed deals are preying on the minds of FinanceAsia’s readers as they ponder the M&A landscape for the year ahead.
Infographics by Evelyn Ng
Infographics by Evelyn Ng

The US-China trade war looms large over the results of FinanceAsia's annual M&A Survey after readers were asked for their thoughts on the deal landscape for the next 12 months. 

In this year’s survey, conducted from March 22 to May 24, almost two-thirds of respondents signalled their belief that the number of failed deals will likely to increase over the next 12 months.

A total of 341 deals were either terminated or withdrawn in the 12 months prior to the survey, according to Bloomberg data – including an offer by a private equity consortium for Yum China

More than half of 61 survey respondents (55.5%) cited national security and antitrust regulations and concerns about economic uncertainty as reasons for their pessimism.

A swift solution to the US-China trade war seems unlikely. Hopes were dashed in May after US President Donald Trump increased tariffs on $200 billion-worth of Chinese goods imports and effectively banned US companies from conducting business with Chinese telco Huawei. Beijing responded with tariffs on $60 billion-worth of US goods. It has also announced an “unreliable entities list”, under which foreign entities that boycott Chinese companies for non-commercial purposes would be blacklisted.

"This thing is going to go on for quite a while,” Charles Li, chief executive of Hong Kong's stock exchange, said after a recent trip to Washington at the HKVCA China Private Equity Summit 2019. 

Ant Financial’s bid for US money transfer company MoneyGram collapsed in January 2018 after a US government panel rejected it over national security concerns.

Such attitudes are also not confined to solely US-China links. Australia, for example, blocked Hong Kong-based CK Group's $9.4 billion takeover of the country’s biggest gas pipeline, APA, also on national interest grounds in November 2018. 

Scarcer financing for deals as the trade war rumbles on also means that deals will be tougher to get over the line. 

"Financing, while available, has become more selective depending on the asset quality, size and the identity of the acquirer. Macro factors such as trade war, capital controls and FX volatility have added an additional layer of uncertainty in current markets," Mayooran Elalingam, head of mergers & acquisitions for Asia-Pacific including Japan at Deutsche Bank, told FinanceAsia.

This is not to say that traditional reasons for M&A failure have vanished. As many as 37% cited the valuation mismatch between buyer and seller and due diligence issues as their main concern.

It is also worthy of note that some of the issues that are often debated in public do not remotely prey on the minds of those contemplating deals. Activist shareholders, issues related to GDPR (if you don't know already, new EU-driven data-protection rules) and the interest rate outlook barely made the needle flicker. 


Concerns about the Sino-US trade are likely to significantly stem Chinese companies' appetite for foreign acquisitions. 

Just over half – 51% – of respondents believe that China outbound M&A will be lower this year than last year. In 2018, China outbound volume totalled roughly $207 billion. 

Respondents are roughly split on whether trade tensions will prompt multinational companies (MNCs) to take the drastic measure of selling their China businesses over the next 12 months. 

It may have been too narrow a question. MNCs appear to be retrenching in China due to slowing economic growth, nimble competitors and their inability to adapt fast enough to changing consumer habits in China.   

“There will be more carve-outs” due to the US-China trade war, said Eric Xin, one of the founding members of local buyout firm Citic Capital, which has already conducted six such deals in China, including the acquisition in 2017 of the Chinese business of McDonald's.

As corporates hesitate to make large investments because of the international political uncertainty, readers expect private equity funds to become voracious dealmakers

Financial sponsors certainly have the means. At the end of June 2018, private capital ready for deployment surpassed $2 trillion, a record amount according to data providers Preqin, and about 18% of that sum, or $360 billion, has been set aside to buy companies in Asia.

As a result of so much dry powder, 63% of survey respondents indicated that they expect a leveraged buyout worth over $10 billion in the next 12 to 18 months. 

To be sure, private equity professionals might also want to hold fire for a while to see if prices drop further. 

A knock-on effect is that China is likely to flex its investment muscles closer to home, more specifically in Southeast Asia.

Chinese buyers are expected to keep their attention primarily within Asia with a smaller percentage expecting it to go to Europe, Africa, Australasia and the Middle East. And an overwhelming 70.4% believe that China will be the largest buyer of assets in the region over the next 12 to 18 months, with only 29.6% reckoning that it will be Japan.


The factors that make an acquisition a long-term success are all interlinked and present few surprises. They boil down to experience and working together.

To get a deal through in the first place, respondents place the acquisition team’s expertise top of the list, along with managing stakeholders’ expectations. Together they are reckoned to be almost half of the factors needed for success.

But significant too – almost equally ranked – are the triptych of guaranteed funding, deal and legal structuring, and thorough due diligence.

Consideration of the type of funding that will see the largest increase over the next year also shows insight into what is reckoned to tip the scales in terms of success. An overwhelming majority of respondents (40.7%) favour co-investing, with only a fifth (20.4%) speaking in favour of bank loans. The number who believe that equity investing is likely to grow stands at only 9.3%.

That collaborative approach is also apparent in the factors that make an M&A deal successful once it is signed. Almost 60% say that integration is the biggest problem that respondents fear encountering, while almost half cite cultural issues and synergies not created.

Surprisingly, almost three-quarters (73.8%) of respondents think that M&A activity across the Asia-Pacific region is likely to be higher in the next 12 months. Asia-Pacific dealmakers raked up about $1.7 trillion of announced deals in 2018.

More to the point, mainland China remains the most attractive destination for M&A in terms of volume and 58.2% of respondents believe that inbound activity is going to be higher than the $58 billion in 2018.

Regarding sectors that might have been a trick question. As Nina Gong at US buyout firm Carlyle put it: “[In] every deal, literally, that we look at, there is always a tech angle.” Gong specialises in consumer retail where traditional bricks-and-mortar stores are racing to incorporate e-commerce into their business models and often turn to the big tech companies or private equity funds to help them make the transition.
Acquisitions of high tech, or companies selling advanced technology, may slow down as valuations look high on a historical basis and the US-China rivalry for hegemony in technology could nix some deals. 
So, instead, private equity funds are looking more closely at sectors shielded from the trade war and slowing economies. 
“Healthcare M&A remains a high-growth sector for Asia, led by [private equity firms], pension and sovereign funds. The stable nature of the asset, and resilience across cycles has made it a priority focus despite the high valuations,” Deutsche Bank's Elalingam said.


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