Goldman's new man at the M&A helm

Johan Leven has taken over Goldman''s M&A division from David Livingstone. Here he shares his views.

Based on your pipeline, do you think this year will be a better year for M&A than last year?

Indications are that there will be more activity this year. It all comes down to the pace of the expected economic recovery and how quickly this will translate into increased CEO confidence. This will determine when managers are going to become more outwardly focused again, as opposed to inwardly focused on their existing operations.

Will the financial institutions sector be as active as last year?

I believe consolidation among financial institutions will continue to be a very important part of the market. There is no doubt about that. There are great fundamental needs here and the sector is critical to the economic development of most countries in the region.

Are there particular countries where you predict financial institutions activity will be hot?

This year will likely see a broad spread of activity, but we see Korea and Taiwan as being particularly active and also expect continued bank reform in China. The same can be said for Hong Kong, where you could argue that bank consolidation is somewhat overdue.

We've already had a couple of bank deals in Hong Kong, but the pace is obviously slower than Singapore.

There are different drivers, and different ownership structures, but the underlying needs are the same. When you look at all the countries in the region, our view is that they are heading in the same direction, but that the timing will be different depending on the local specifics - regulation, government ownership, asset quality issues and so forth.

What's your sector background?

I am an M&A product person, so over the years I've been involved with deals in most sectors: banking, technology, power, natural resources, consumer goods, pharmaceuticals, engineering, you name it.

Do you see a key trend this year being consolidation of the mobile operators in Hong Kong?

There is definitely a need for consolidation of the Hong Kong mobile sector, but whether it's going to happen this year or next, it's too early to say.

Do you think this Emerson Huawei deal will trigger off more deals in China or will it still be a tough market for M&A?

Typically, individual transactions are not the trigger for wider market activity. An individual transaction tends to be the result of more fundamental drivers. Having said that, a specific transaction can be important, as it can focus peoples' minds on what is achievable. There is no doubt that M&A in China is on a growth path with increasing M&A needs of both private sector and public sector companies. There will be more to come. Long-term, China is the big engine of growth in the region.

I read the other day that China has 2000 light bulb manufacturers. Would you agree that there is a need for a lot of internal M&A?

Yes, there are many industries in China that need to consolidate. However, many companies are still quite small and it will take time for larger groups to form. In addition, there will also be a need for cross-border flows. Unlike the past, these may not take the form of joint ventures. It is becoming increasingly feasible to make direct acquisitions. Likewise, outbound M&A flows will gradually begin to increase as a result of the WTO, which, in the long-term, is very positive for M&A activity.

There is a growing group of emerging world-class Chinese companies and, like their international peers, they need to have geographically balanced asset portfolios.

Is China on the cusp of creating a takeover code?

The Chinese regulators take the M&A area very seriously and they are thinking deeply about how to organize their regulatory framework and how to update it to govern new situations. Takeover code is too narrow a definition of what needs to change. You are moving from essentially a state-owned economy so competition will be an emerging concept and, with that, antitrust considerations will become more relevant. You also have regulation of capital flows into and out of China. And then you get to issues like protection of minority shareholders. So China is facing a more comprehensive overhaul of its regulatory system and I think they are making very comprehensive efforts. It's only a matter of time before they begin to implement new regulations.

In China you have a continuous debate. You have industries that get deregulated and broken up and organized geographically or according to value chains - to create competition - and on the other hand you have significant issues in making sure these companies can compete with overseas companies. To balance all this and time it right is a huge challenge.

I suppose it's a debate between creating national champions, and a more competitive consumer-driven economy.

That's right. There is a need to reform frameworks both comprehensively and quickly, with the quick pace of development of the economy making the issues more acute.

The debate is probably most visible to outsiders in the telecoms field.

Absolutely. That's an industry that is being opened up, with some very big companies being broken up to create a new and efficient industry structure.

Is there a blueprint in Asia for a good takeover code?

The trick with takeover codes is to make sure they are efficient and consistent with existing regulations, while at the same time providing robust rules about fairness and protection of minority shareholders.

Australia's takeover regulations, for example, are quite different to Hong Kong's, although both jurisdictions have well-developed public M&A markets. In Australia, the "trigger" is 20% and it's not a mandatory bid trigger as in Hong Kong. When you get to 20%, you essentially have four options, the most common being a bid. The point is that each Asian country will need to continue to develop its own code, promoting fairness and equal treatment of shareholders, but tailored to its own existing regulatory and local conditions.

Some bankers complain about market share being bought through scanty fees. Will that continue?

As a market matures and companies become more used to working with investment banks, clients invariably focus on value-added and the total value proposition of getting things right, conceiving and executing transactions in a world-class way.

Share our publication on social media
Share our publication on social media