Asia's M&A business booms
Published: January 29 2001 21:22GMT | Last Updated: January 29 2001 23:31GMT
The announcement of the investment bank league tables in Hong Kong sometimes seems to have more than a little in common with trophy presentation night at a high school football club.
The awards are usually accompanied by plenty of behind-the-scenes grumbling among bankers about who and what deals should or should not have been included.
However, following the latest league table announcements, there was one point on which everyone was in agreement - 2000 was the year when the region's mergers and acquisitions floodgates opened in earnest.
The volume of deals last year doubled compared with 1999. Transactions announced during the year reached a record US$187bn, while those closed hit $144bn, according to Thomson Financial, the data company.
While the figures were boosted by two "mega-deals", investment bankers insist the trend is here to stay. Despite the global economic slowdown, pent-up pressures on companies to become more competitive are expected to keep the M&A ball rolling in Asia, bankers say.
If the process continues, the result will be a sustained shift in Asia's corporate landscape from government and family control of businesses to a more competitive environment.
David Livingstone, Singapore-based managing director and head of mergers and acquisitions in non-Japan Asia at Goldman Sachs, says: "The main drivers behind global M&A continue to be globalisation, competition, international trade flows, and the technological revolution. They are fundamentally the same reasons why M&A is growing in Asia."
The M&A process in Asia began to pick up in the mid-1990s but it was not until the Asian crisis of 1997/1998 that it became truly regional.
Mark Dowie, UBS Warburg joint head of corporate finance in non-Japan Asia, says: "The crisis damped valuation expectations pretty dramatically. It also resulted in a whole swathe of changes in regulations on ownership."
The boom was slow to get off the ground as sellers and buyers quibbled over prices. But last year, business started to overflow, helped by deals such as the takeover of Cable & Wireless HKT, Hong Kong's dominant telecommunications company, by Pacific Century Cyberworks, an internet start-up. The transaction was valued at US$35.49bn when it was announced.
The other major deal was the US$34bn acquisition by China Mobile (Hong Kong), China's largest cellular company, of 13 networks from its mainland parent.
Bankers believe that, mega-deals aside, steady growth is sustainable. Michael Carr, head of investment banking for non-Japan Asia at Goldman Sachs in Hong Kong, says average deal volumes in Asia are the equivalent of between 5 and 7 per cent of market capitalisation, or about half the levels in the US and Europe.
He believes that Asia should be able to close this gap in four or five years if markets and macro-economic conditions remain relatively stable and governments pursue the legal and accounting reforms necessary to encourage mergers.
Most firms expect the financial sectors of Taiwan, South Korea and Hong Kong to be centres of merger activity. The process has begun in South Korea, which last month announced a merger between two leading banks, Kookmin Bank and Housing & Commercial Bank, says UBS' Mr Dowie.
In Singapore, privatisation is expected to remain a key theme, while in Hong Kong, the crowded cellular telephone industry is a target.
Indonesia's telecoms sector is also long overdue for change, although the country, together with Thailand, Malaysia and the Philippines, is still wrestling with internal political issues.
Regionally, technology and internet buy-outs are also expected to remain a theme.
The flurry of activity has also brought changes in the investment banking industry in Asia. Half the volume of transactions is still between domestic companies. However, international banks are increasingly being sought as advisers, prompting rapid expansion in the major banks and cut-throat competition for talent.
It still remains to be seen, however, whether the momentum of 2000 is sustainable. In a region where business and politics are still controlled by a relatively small number of families, there is an inbuilt resistance to surrendering control, particularly to foreigners. The other danger is that the economic slowdown in the west will reduce the appetite of foreign buyers for Asian assets. Most bankers, however, appear undeterred.
Henry Van Dyke, head of mergers and acquisitions in non-Japan Asia at Morgan Stanley Dean Witter in Hong Kong, says: "Difficult times often force companies and their owners to consider a broader range of alternatives, which these days in Asia seems to include M&A."
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