Mergers & Acquisitions

Global mergers and acquisitions at tipping point, with Asian firms aggressive buyers, says JP Morgan

Chinese companies account for almost half the record US$1.2 trillion in deals struck by Asian firms this year

PUBLISHED : Thursday, 19 November, 2015, 8:07pm
UPDATED : Thursday, 19 November, 2015, 8:07pm

Global mergers and acquisitions (M&A) activity is entering a turning point, with Asian companies coming to the fore, having struck a total of US$ 1.2 trillion worth of deals this year.

Asian firms, and especially Chinese ones, are increasingly betting on cross-border acquisitions for future growth, with 88 per cent of them identifying themselves as net buyers, according to a survey released on Thursday by JP Morgan.

“To meet the demands of this more consumer-driven economy, and bring their products to a broader range of customers, Asian companies are seeking value-added products, services, technologies and management skills in their acquisitions,” it said, following the survey of 55 companies in nine Asian regions between July and October.

Chinese companies are seeking to expand globally and buying trophy assets
John Hall, JP Morgan

Asian firms snatched a record of 30 per cent of a total of US$4.2 trillion in deals seen this year, compared to a 10 per cent to 15 per cent share in the past, according to Dealogic data.

“What we are witnessing is a secular trend. Chinese companies are seeking to expand globally and buying trophy assets, backed by strategic government support and low costs of capital,” said John Hall, managing director and co-head of Asia M&A at JP Morgan.

Chinese firms have struck a record of US$563 billion in deals so far this year, accounting for almost half of the Asian total. JP Morgan forecasts that total deal value in China will exceed US$600 billion this year, compared to US$379 billion in 2014 and US$297 billion in 2013.

The American investment bank has been the top dealmaker in China this year, having advised on US$83 billion of transactions in the country, followed by China International Capital Corp (US$54 billion) and Morgan Stanley (US$51 billion), Dealogic data shows.

Industrial manufacturing, consumer products, technology and telecoms have been the most active sectors.

The survey found Asian firms tend to be patient and strategic buyers, having routinely paid higher transaction premiums for targets outside the region. They also have a relatively low minimum rate of return of 10 per cent to 15 per cent and a long time horizon of five to 10 years.

But Asian companies need to catch up with international timelines. More than half of respondents said they needed six months to prepare for an auction process, compared to the one or two months needed by American firms.

“In cases of Chinese state-owned enterprises, the need for approvals can have a serious impact on their ability to react quickly in an auction,” JP Morgan said.

Hall said: “in an auction process, you may be disadvantaged if you can’t move quickly enough. Having said that, Chinese are far more proficient in doing deals overseas than previously.”