Deal bankers see slowest M&A activity in Asia-Pacific outside Japan since 2014: Dealogic

07-Jan-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

Merger and acquisition (M&A) activity in Asia-Pacific excluding Japan occurred at its slowest pace in five years in 2019 as concerns about a slowing global economic outlook and the ongoing US-China trade war weighed on deal bankers and companies, according to data from Dealogic.

Total transactions fell 10.3 per cent to $667.8 billion last year, according to Dealogic, the lowest volume since $679.3 billion recorded in 2014.

Technology, property and finance deals dominated the activity in 2019 with varying impact. The technology sector accounted for $111.2 billion of transactions, a 43 per cent decline from 2018, while the property sector recorded a 21 per cent drop to $82.2 billion. The finance sector saw a 40 per cent increase to $74.8 billion.

While the US and China are due to sign a phase one deal later this month, geopolitical tensions have increased elsewhere around US-Iran and North Korea issues. A slowdown in deal making is likely to continue into 2020 as uncertainty about the outlook for the global economy mounts, according to Tracy Wut, a M&A partner at Baker McKenzie in Hong Kong. The firm predicted in October that global deal activity would drop by 25 per cent this year.

“While the US-China phase one deal is a welcome move, the devil is in the details and businesses are likely to continue to react in a cautious and measured way,” Wut said. “That said, macro drivers should become more conducive to deal-making from 2021 onwards.”

Globally, M&A deal value declined slightly to $4.09 trillion in 2019 from $4.11 trillion in 2018, according to Dealogic. The biggest transactions included the $135 billion combination of United Technologies and Raytheon, drug maker Bristol-Myers Squibb’s $74 billion acquisition of Celgene Corporation, and AbbVie’s $63 billion takeover of Botox maker Allergan.

Almost half of the global volume came from the US, driven by a raft of mega deals in the fourth quarter. They included broker Charles Schwab’s $26 billion deal for rival TD Ameritrade, and French luxury group LVMH’s $16.2 billion acquisition of American jeweller Tiffany & Co.

Morgan Stanley took the top spot in Asia-Pacific excluding Japan for M&A advisory work in 2019, ahead of rivals Goldman Sachs and BofA Securiites, according to Dealogic. The three banks advised on $264.5 billion of deals in the region.

The biggest deals in the region included Blackstone Group’s $18.7 billion acquisition of Singapore logistics provider GLP’s US industrial warehouse assets, the sale of a 20 per cent stake in Reliance Industries’s oil-and-chemicals business to Saudi Aramco for $15 billion. Also notable were $15 billion investment by Singapore’s Dreamvision Overseas in India’s Tzar Aerospace Research Labs, and a $14 billion capital injection into troubled Shandong province-based lender Hengfeng Bank.

China’s efforts to cut debt levels as mainland companies beginning in 2016, combined with the trade war, also have cut into outbound deal activity by Chinese firms. The flow has dwindled for three years straight to $53.4 billion last year, the least since 2010, according to Dealogic. Chinese companies sold a record amount of overseas assets at $41 billion.

“China is set to see further consolidation among its lenders as smaller banks have been hit with liquidity problems due to the economic slowdown,” Riccardo Ghia, research editor for APAC at financial data provider Mergermarket, said.

The US-China trade conflict, which has raged for more than a year, has weighed on business confidence and caused firms to reconsider long-term investments as both countries have placed tariffs on hundreds of billions of dollars of each other’s goods.

US President Donald Trump, who has been trying to pressure Beijing to change decades of trade and industrial policy, said last week that he would sign a “very large and comprehensive Phase One Trade Deal” with China on January 15. Optimism over a trade truce has bolstered markets in recent weeks.

Japan was a bright spot for M&A bankers as activity “significantly outperformed” the wider region, as deal value surged 59.5 per cent to a seven-year high of $75.4 billion, according to data compiled by Mergermarket. The year was anchored by Asahi Group’s A$16 billion (US$11.1 billion) purchase of Anheuser-Busch InBev’s Australian operations in July, a record for the Australian market. Inbound investment in Japan rose to $12.4 billion from $6.6 billion in 2018.

“Going forward, Japanese deal makers will continue to pursue M&As at home and abroad to address internal structural reform and market expansion needs,” Mergermarket said. “They will also likely have to navigate greater protectionist forces in the domestic market and overseas.”

Hernan Cristerna, global co-head of M&A at JPMorgan, said the investment bank expects this year to be an active one for merger activity, but volumes will not vary dramatically from 2019. Companies will prioritise strategic deals in what is likely to be a defensive market, he said.

“It’s very difficult to imagine a year where there’s been so much regulatory, trade [and] economic uncertainty,” Cristerna said in a video posted on the company’s website. “What we hope is that those sorts of uncertainty will be clearer, better defined [in 2020], and that is going to result in more M&A activity, particularly in the rest of the world outside North America.”

The global economy should begin to stabilise, while the volatility affecting financial markets will subside and an expected weakening in the US dollar will ease liquidity conditions, Baker McKenzie said. The appetite for deal-making should return from 2021 onwards, providing the foundation for a gradual recovery in M&A volumes.

One potential driver of M&A activity could be private equity firms as the industry are facing “heavy pressure” to deploy stockpiles of capital, said Wut, the M&A lawyer.

“Recognising that downturns create real opportunities, it is likely that the coming years will see a resurgence in the [private equity] shares of both M&A and [initial public offering] activity,” she said.

JPMorgan estimates the private equity industry has about $1.3 trillion in “dry powder” to be deployed.

Private equity buyouts in Asia-Pacific, excluding Japan, declined 23.6 per cent to $98.8 billion in 2019 and exits in the region by private equity firms fell 54.7 per cent to $54.3 billion last year, according to Mergermarket. Technology was the most active sector for buyouts despite declining by about half to $17.7 billion.

https://sg.news.yahoo.com/deal-bankers-see-slowest-m-033713283.html

 


Category: FinanceAsia

Print This Post