M&A leader eyes growth in the region

PUBLISHED : Thursday, 20 September, 2007, 12:00am
UPDATED : Thursday, 20 September, 2007, 12:00am

Asia's thriving market for mergers and acquisitions (M&As) will probably bounce back from the global credit concerns that were triggered by defaults in the United States subprime mortgage market last month, said PricewaterhouseCoopers (PwC) partner David Brown.

'The concerns are likely to have less of an impact in this part of the world, and one reason is that deals here tend to be not so highly leveraged and smaller, so they are less dependent on aggressive debt financing,' said Mr Brown, the company's Hong Kong-based M&A specialist.

According to Thomson Financial, PwC ranked at the top of the transaction table of financial advisers that completed M&A deals last year in volume - testimony to a service directed at putting domestic and middle market deals together while leaving the mega-mergers to its larger investment banking rivals. The company was a financial adviser for 189 deals last year, outranking second placed Nomura and its big-four rival KPMG Corporate Finance, which acted in 120 deals (see table).

Bringing the deals to the table, Mr Brown said, was a team of 1,400 country-focused transaction specialists in every major location in the Asia-Pacific, with a concentration in China/Hong Kong (261) and South Korea (230).

Mr Brown said in the mainland and Hong Kong PwC had more than 200 people working on M&A deals, 75 per cent of whom were based in the mainland and might have 30 to 40 transactions under way simultaneously.

'As a result we can provide clients with a perspective. We can tell them what the rules say and quantify potential exposure.

'We can also advise them on market and regulatory practice because we look at hundreds of transactions a year and we see things many times and look across the spectrum of transactions.

'I do not believe there is another intermediary that sees anywhere near the volume of deals that we do,' he said. A big part of that business, Mr Brown said, was the financial due diligence required to put M&A deals together.

'Our firm was one of first to specialise in this area and we continue to secure appointments as a consequence of our long experience in the market in this part of the world, the depth of experience we have in China, and the fact that we operate as a single unit through China and Hong Kong.'

In a mid-year survey of the M&A market, PwC reported that, in the Asia-Pacific, China dominated deal making.

'Overall, the disclosed value of M&A activity in China [excluding Hong Kong] was US$34billion for the first half of this year compared with US$19billion in the first half of last year [and] the number of announced deals climbed from 879 in the first half of 2006 to 1,063 in the comparable period for this year,' the survey said.

However, the survey said the total picture obscured a key theme emerging from the mainland - a clear and definitive divergence in trends between domestic and foreign M&A activity.

'Domestic activity is increasing quickly and is being fuelled by financing available from equity markets which is providing the funds that allow leading companies to act as industry consolidators,' the survey said.

'In those sectors of the economy that existed under the central planning system, ownership is fragmented and M&A is now being allowed to be used as a tool to consolidate industries such as energy, cement and steel, but often into the hands of state-controlled groups.'

Private equity funds again took centre stage in the M&A marketplace, though there were as many failed attempts as successful ones.

'Nevertheless, private equity is now firmly ensconced in most Asian markets and we expect to see larger and bolder deals as the year progresses,' PwC's surveyors said.

The number of transactions in the M&A pipeline in Asia remained high, Mr Brown said, and against this background PwC remained cautiously optimistic that the continuing strong growth in its M&A business would be sustained in the second half of this year.