Red tape puts suitors off deals, survey finds

'Regulatory creep' in the Asia-Pacific region is deterring companies from mergers and acquisitions, according to global law firm Clifford Chance and threatening to choke economic activity.

The firm commissioned a survey of about 400 companies worldwide with revenues of more than US$1 billion, of which a third are based in the Asia-Pacific area.

Of the Asia-Pacific respondents, 22 per cent of Southeast Asian companies and 21.4 per cent of Chinese companies said 'regulatory creep' was likely to stop them from embarking on M&A activity. Regulatory creep is loosely defined as a regulation expanding beyond its original intent.

China, Southeast Asia and India, are their top three M&A destinations in the region. Hong Kong-based Clifford Chance partner Simon Cooke said regulators' more robust stance - sometimes driven by local politics - could have a 'knock-on effect' on deal structures, forcing them to take minority or majority stakes or even a joint venture instead of a buyout.

Matthew Layton, the firm's London-based head of global corporate practice, said foreign firms were gearing towards joint ventures when entering emerging markets to mitigate business risk and other issues like intellectual property right protection, with the help of their local partners.

The survey also found that companies in the Asia-Pacific region were relying less on banks and more on cash and public debt markets to finance M&A activity as deleveraging by European and US banks meant credit had tightened and corporate finance took longer to approve.

Clifford Chance finance partner Anthony Wang said banks had become more selective in lending since the euro-zone crisis, taking longer to approve and complete loans.