Morgan Stanley Sees Strong Growth In Asian Mergers and Acquisitions
July 12, 2001
Business and Finance - Asia
By KIRSTI HASTINGS
Dow Jones Newswires
HONG KONG -- Asia will witness substantial growth in merger and acquisition activity over the next few years, according to Morgan Stanley's head of investment banking for Asia-Pacific.
China is becoming an increasingly important player, after massive fund-raising efforts among its biggest companies prepare the market for M&A.
"Over the next three years, M&A volume in Asia will have a 25% compound annual growth rate," Morgan Stanley Managing Director Michael Berchtold said in an interview with Dow Jones Newswires Thursday. "There's tremendous room for growth. These are early days for M&A activity in Asia."
On Wednesday, Thomson Financial announced figures for M&A activity in Asia ex-Japan and Australia for the first six months of the year. According to Thomson, M&A activity in Asia during the first half slumped 42% to US$56.16 billion from US$96.17 billion during the corresponding period of 2000.
The figures include all transactions announced during the period, meaning that Pacific Century CyberWorks' US$35.5 billion takeover of Cable & Wireless HKT, the biggest corporate takeover in Asia outside of Japan, may have inflated the year-earlier figure.
While Thomson said the Asian figures point to the repercussions of a world-wide slump in financial market activity, Mr. Berchtold said Morgan Stanley's M&A activity in Asia is up 40% to 50% this year.
Morgan Stanley topped Thomson's list of investment banks involved in M&A deals. The bank's "pipeline of business is stronger than it has ever been," he added.
Morgan Stanley served as adviser on deals valued at US$15.32 billion, according to the Thomson list. Goldman Sachs ranked second with deals valued at US$12.85 billion. According to Morgan Stanley's own figure, which includes Australia in its Asia activity, the bank advised on deals in the region valued at US$27.1 billion during the period.
'A Huge Business in China'
While China hasn't yet seen a lot of M&A activity, "M&A will be a huge business in China in three years or so," Mr. Berchtold said.
China needs to raise about US$200 billion on the international capital markets over the next 10 years, Mr. Berchtold said, as many of its mammoth state-owned enterprises are restructured and partially privatized. But after the top companies are restructured and listed on international markets, China will attract more buyers for M&A activity, Mr. Berchtold said.
M&A activity in Asia, which has been dominated by consolidation in the banking sector in Singapore and Hong Kong as well as several high-profile telecom deals, is expected to center over the next three years in South Korea, Hong Kong, Singapore and Australia, he said. It will likely encompass all major industries, he added.
Following several deals among Singapore banks, including DBS Group Holdings' US$5.68 billion takeover of Hong Kong's Dao Heng Bank and its US$5.18 billion bid for Overseas Union Bank in Singapore, there is still room for consolidation in Singapore as well as Hong Kong, he said.
Morgan Stanley is involved in both deals, though the figures are based on Thomson's data.
"There is room for three to five very important [commercial] banks" in the Hong Kong market, Mr. Berchtold said.
Indeed, he expects banks will scramble to enter the consolidation game quickly as there will be a limited number of eager buyers, making it critical to act quickly or risk lowering the prospective price for midsized banks.
Morgan Stanley expects the activity in Hong Kong and Singapore to drive a trend in Asia.
Write to Kirsti Hastings at kirsti.hastings@dowjones.com1
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