Asia M&A deals hit record high amid slowdown

An investor studying the Shanghai Stock Exchange Composite Index at a brokerage house in Beijing on Aug 26. Investment in China dropped significantly after the Shanghai bourse crashed in August. Just five deals worth US$97 million were announced by i
An investor studying the Shanghai Stock Exchange Composite Index at a brokerage house in Beijing on Aug 26. Investment in China dropped significantly after the Shanghai bourse crashed in August. Just five deals worth US$97 million were announced by investors outside the region in August and last monthPHOTO: REUTERS

Dealmaking in Asia has reached all-time highs despite the slowing regional economy.

There have been 2,606 mergers and acquisitions (M&A) in Asia excluding Japan so far this year, worth US$614.1 billion (S$875 billion), said research firm Mergermarket.

These are both the highest deal count and deal value that Mergermarket has on record for Asia in the first three quarters of any year.

The values of deals inked this year is close to last year's total of US$641 billion, bolstered by the highest third-quarter value on record of US$169.6 billion.

"Increased competition for Asian targets has affected the valuations that companies are willing to pay," Mergermarket said in a report yesterday, adding that Chinese companies are bringing in particularly high valuations.

PwC Singapore's co-head of M&A, Mr Ling Tok Hong, said much of the region's dealmaking activity is focused on the "mega trends" of healthcare, consumer goods and services and real estate.

"I think deals in the technology and Internet sector will surpass last year's numbers, but these are often done by private equity firms and so the figures are not usually disclosed," he added.

The top three target markets in Asia for investors this year have been China, Hong Kong and South Korea, Mergermarket said.

But the recent market volatility has spooked non-Asian investors eyeing China, with just five deals worth a total of US$97 million announced by investors outside of the region in August and last month.

A significant drop in investment was also seen after the Shanghai market crashed in August, with third-quarter inbound activity dropping 37 per cent from the same period last year to US$6.9 billion.

Chinese investors, meanwhile, have remained active abroad, as larger players access foreign currency reserves to fund purchases, Mergermarket said.

"Even though overseas acquisitions have become more expensive, Chinese companies have invested US$66.8 billion to date, up 49 per cent by value compared to the same period in 2014."

Chinese companies invested US$28.1 billion in the third quarter alone, a threefold increase over the same period last year.

India's new government and its planned reforms seem to have boosted investor interest in the country, Mergermarket noted. The country has seen 298 deals being inked this year totalling US$ 27.6 billion, a 22.8 per cent increase from the same period last year.

More than 40 per cent of these deals were done by companies based outside Asia Pacific, Mergermarket noted.

Globally, based on the activity rate for the first nine months of the year, 2015 could see total deal value reach an estimated US$3.83 trillion by the end of the year, representing a new record, Mergermarket said.

So far this year, M&A deals worth US$2.87 trillion have been signed globally, up 21.1 per cent from the same period last year.

PwC's Mr Ling said a lot of clients who have entered talks are looking to quickly wrap up their deals before the United States Federal Reserve raises interest rates, which would increase their borrowing costs.

"But next year we might see a slowdown in M&A activity, because of general economic conditions. if data that comes through from the Government really shows (a serious slowdown) then everyone will sit back and relook the situation," he added.

A version of this article appeared in the print edition of The Straits Times on October 02, 2015, with the headline 'Asia M&A deals hit record high amid slowdown'. Print Edition | Subscribe