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Wholesale Banking

Corporates grow with Asia deals

According to an article in 'The Standard' on 25 March, ING Bank takes a positive view of the overall merger and acquisition market in Asia, given the high availability of capital. "Our outlook is that 2019 will remain robust."

Beijing, China business district

The article says that the deals in Asia from 2012 to 2018 were valued at US$6.6 trillion (HK$51.8 trillion), with cross-border deals representing 34 percent of overall value at US$2.3 trillion, according to data from Dealogic and ING analysis.

About 48 percent of Asian investments were from China and Hong Kong, followed by Japanese at 9 percent. Technology, real estate, and finance are the top three industries by target region in terms of value in China and Hong Kong, as well as all of Asia.

ING reports 3 percent year-over-year growth in M&A volumes in Asia, robust across both corporate and the financial sponsors across sectors in 2018.

"Our outlook is that 2019 will remain robust," says ING, explaining that some surveys by Ernst & Young, PricewaterhouseCoopers, and Deloitte of executives in Asia M&A cited over 85 percent of respondents expecting an increase across sectors. They say the themes from 2018 will continue into 2019.

"So with the high availability of capital, the technology encouraging more M&A activity sector convergence themes, for example, the TMT (technology, media, telecom) sector merging with the financial institutions sector in terms of looking at disruptive technologies, and with historically high valuations, corporate activity to unlock shareholder value, the market is shown resilient today," says Michael Niederberger, managing director and head of corporate finance in Asia at ING.

Despite Brexit challenges, trade wars, geopolitical stress, and growth reducing in countries, such as Germany and China, ING thinks that in a way it offers opportunities.

"You know directionally was still quite optimistic," says Aart Jan den Hartog, country manager of Greater China and Mongolia and chief executive of the Hong Kong branch at ING. He adds that 6 percent economic growth for China is phenomenal, and the government is taking steps to make sure that liquidity becomes available by cutting requirement reserve ratio on banks.

"I do see that people are just slightly more careful in their plans. That is not unique to Chinese companies. European companies are very careful, and US companies are considering whether they should keep the balance sheet strong. And that is a global phenomenon, given the fact that there are a number of concerns and there's more volatility," says Den Hartog.

Only 40 percent of businesses expect to increase their capital expenditure in 2019, almost half that in the previous year at 74 percent, a Refinitiv Deal Makers Sentiment Survey reveals.

It also shows that technology M&A was US$63.1 billion as of March 14, 2019, down by 42 percent from a year ago.

The survey finds that overall deal makers are expecting a virtually flat market in 2019 with a 0.2 percent drop in global M&A deal volume, while dealmakers in Asia-Pacific are most optimistic, predicting growth of 2.4 percent.

"We expect continued growth in M&A activity in the technology sector in Asia as companies look to stay competitive and position their businesses for changing consumer patterns, industry disruption, and evolving business models," says Niederberger.

He explains that large technology companies, for example from China, are expanding their geographic and product footprints, while emerging technology companies, for example in Southeast Asia, are growing rapidly and require new capital for expansion.

Tech giant Tencent (0700) has said it will not scale back on investments this year after a record high of 16 companies it invested in launched IPOs last year, Reuters quoted president Martin Lau Chi-ping as saying in February.

Tencent invested in more than 700 companies in the past 11 years, Lau said, and 63 of those are now listed, while 122 are valued at more than US$1 billion.

As for Europe, ING's Niederberger is convinced that there is greater scrutiny, but he doesn't think it is at the same level as in the US.

Investment from Europe to China from 2012 to 2018 was valued US$149 billion, while from Asia to Europe was at US$639 billion, almost 3.3 times larger.

Outbound investment to Europe spiked significantly 98.92 percent from US$36.9 billion in 2017 to US$73.4 billion in 2018, though overall outbound investment dropped.

"I think that is consistent. There is still sufficient robust flows to Europe. Over the last 15 years that I've been doing M&A in Asia, I've also seen M&A as a recruiting tool in the toolkit for corporates. They are using it as a means of growth, in addition to organic growth. There was a slow down and outbound activity by Chinese. But that was offset by increasing activity by Japanese outbound flows, and in Southeast Asia," Niederberger says.


Source: The Standard, Tereza Cai, 25 March 2019