M&A survey part 1: China to race ahead

Readers of FinanceAsia gave their verdict on the outlook for the M&A market in the year ahead in a survey conducted in association with Clifford Chance.

In a survey conducted in association with Clifford Chance, FinanceAsia’s online audience was asked how active investors and acquirers from each Asia-Pacific country would be over the coming 18 months. An impressive 69.8% of respondents in the survey who mentioned China said it would produce the most investors/acquirers in the coming year to 18 months. 

China also looks set to be a hotspot for inbound M&A. Over two-thirds (67.6%) of respondents named it as the region’s top destination for deals. Australia/New Zealand came second, at 58%. Hong Kong was also surprisingly strong; 26.2% of respondents who took a view on the city felt it would be Asia’s busiest spot for inbound M&A, although this is probably another reflection of the China engine.

Which countries and territories will produce the most investors/acquirers in Asia-Pacific in the next year to 18 months

  Country with most investors/acquirers Country with 2nd most investors/acquirers Country with 3rd most investors/acquirers No. of responses
Australia/NZ 25% 35% 40% 20
Mainland China 69.8% 24.3% 5.9% 136
Hong Kong 21.2% 39.4% 39.4% 33
India 23% 38.5% 38.5% 26
Japan 24.1% 40.7% 35.2% 54
Middle East 27.2% 36.4% 36.4% 11
Singapore 25% 30% 45% 20
South Korea 25% 8.3% 66.7% 12
Taiwan 20% 40% 40% 5
Indonesia 44.4% 33.3% 22.3% 9
Thailand 33.3% 16.7% 50% 6
Philippines 20% 20% 60% 5
Malaysia 25% 25% 50% 4
South America 0% 0% 100% 2
US 43.7% 39.8% 16.5% 103
UK 10.5% 31.6% 57.9% 19
Eurozone 17.1% 29.3% 53.6% 41
Europe 0% 25% 75% 8

“Hong Kong’s strength seems to lie partly in the fact mainland companies are seeking to expand there,” said Roger Denny, partner and head of M&A for Asia-Pacific at Clifford Chance. “It makes sense; it’s a safe and reliable market with a reliable legal jurisdiction, it’s not so culturally dissimilar and local executives will be willing to move there. It can be used as a platform for mainland companies to grow regionally and globally.”

Hong Kong is also an appealing and stable base for international companies seeking access into China. 

Which countries and territories do you think will be the most popular location for Asia-Pacific outbound M&A acquisitions in the next year to 18 months?

  Most popular location/target 2nd most popular 3rd most popular No. of responses
US 67.4% 22% 10.6% 132
Canda 25.7% 42.9% 31.4% 35
South America 27.5% 32.5% 40% 40
Middle East 22.7% 31.8% 45.5% 22
Africa 18.2% 42.4% 39.4% 33
UK 9.8% 45.1% 45.1% 71
Eurozone 31.3% 44.8% 24% 96
Central & Eastern Europe 12.5% 20.8% 66.7% 24

 

Desire to acquire

Respondents to the survey said strategic thinking would likely drive M&A. Voters were asked to ascertain what factors are driving Asia-Pacific outbound M&A.

The most popular answer was ‘Asia companies adopting a global strategy’; 67% of respondents who answered this option placed it as the most important factor. Depressed valuations and a desire to
find new markets were secondary considerations.

  Totally agree Somewhat agree Neutral Somewhat disagree Totally disagree
The correction in the natural resources sector makes it attractive for opportunistic acquirers 32.9% 25.7% 27.9% 12.1% 1.4%
Asia-Pacific companies are more likely to focus on acquisitions in emerging markets than in mature markers 17.7% 32.6% 21.3% 22% 6.4%
Western companies are likely to maintain their focus on emerging market strategy notwithstanding greater economic uncertainty in those markets 18.2% 45.4% 22.4% 11.9% 2.1%
Integration of acquisitions in Asia-Pacific is more difficult than anticipated 22.9% 37.1% 27.9% 10.7% 1.4%
Asia-Pacific companies believe there are good opportunities for acquisitions in the US and Europe 28.9% 51.4% 15.5% 4.2% 0%
Bribery and corruption is one of the most significant concerns for companies looking at targets in the region 26.2% 36.2% 27% 9.9% 0.7%
Companies are not targeting acquisitions in China due to greater enforcement actions for non-compliance with laws and regulations 15% 32.9% 32.1% 17.1% 2.9%
Acquisitions that you have been involved in have been considered successful for the acquirer 24.3% 40.7% 32.9% 2.1% 0%
Sellers are increasingly looking for, and in most cases are able to achieve, greater deal certainty before agreeing to a disposal 13.7% 50.3% 29.5% 6.5% 0%
Protectionism is one of the most significant concerns for buyers 27.7% 41.8% 20.6% 9.2% 0.7%

The survey also underscored a notable shift in the purchasing power of buyers versus sellers.

While there has always been an emphasis on the relative power of regional buyers, most likely due to their large cash bases, the percentage in their favour has risen from 60% in 2012 to 79.1% in the latest survey.

 

The swing may indicate nervousness among buyers about asset purchases, leaving sellers more inclined to ease their prices and conditions of sale.

Overall, this year’s survey results suggest regional companies are becoming more confident about acquiring, particularly offshore.

Yet Joe Gallagher, head of Asia-Pacific M&A at Credit Suisse, is more cautious about identifying such a full-throated desire for M&A among Asia companies.

“Are managers and boards more comfortable with M&A as a strategy?” he mused. “The level of activity would indicate yes, but I think it’s more a function of companies adapting to a changing environment rather than a conscious strategic shift.”

For more from the survey, including the sectors readers see as likely hotbeds of M&A activity, check back on Wednesday, December 23. 

¬ Haymarket Media Limited. All rights reserved.

Article limit is reached.

Hello! You have used up all of your free articles on FinanceAsia.

To obtain unlimited access to our award-winning exclusive news and analysis, we offer subscription packages, including single user, team subscription (2-5 users), or office-wide licences. To help you and your colleagues access our proprietary content, please contact us at [email protected], or +(852) 2122 5222