Slowdown in Asia kills off US$49b in deals

Withdrawals of mergers and acquisitions involving Asian companies jump fourfold this year, reflecting caution and rising competition

PUBLISHED : Saturday, 03 August, 2013, 12:00am
UPDATED : Saturday, 03 August, 2013, 5:04am

Slower than expected economic growth in Asia has scuttled almost US$50 billion in acquisition deals this year.

With DBS Group pulling its bid to acquire Bank Danamon Indonesia this week, withdrawals of mergers and acquisitions involving Asia-Pacific companies saw a fourfold increase to US$49.1 billion in the first seven months of this year, from US$12.2 billion in the same period last year, according to Thomson Reuters data.

A record US$97.1 billion of withdrawals took place in 2010.

The increase in failed deals reflected global economic trends, said David Wu, the managing director of ING Bank in China.

"Due to the rapid recovery of the US and Japanese economies, [Asia-Pacific] buyers face stiff competition from US and Japan when they try to acquire companies overseas, no matter whether in Europe, the US or within Asia," he said.

Joseph Chan, a partner at Sidley Austin in Shanghai, said the time for closing an M&A deal had doubled as "the buyers became more cautious and preferred to observe for longer before paying the money".

A transaction normally took three to 12 months to complete, he said.

Bob Partridge, EY's transaction advisory services leader for Greater China, pointed out that valuation gaps existed because macroeconomic conditions had declined.

"People are more cautious and may stop the transaction because of the economic slowdown," Partridge said.

Some transaction failures were due to a change of regulatory requirements, Chan said. DBS, which aimed to take a controlling stake in the Indonesian bank, abandoned the US$7.4 billion acquisition after Indonesia implemented new bank ownership rules that capped foreign ownership of local banks to 40 per cent.

Jon Parker, transaction services partner at KPMG China, said it was hard to say whether the increase in M&A withdrawals in the region was an indicative trend. "It is a very short time period and may include a couple of large failed deals that skew the numbers. I expect over a longer timeframe deal activity in Asia will be more positive on a whole," Parker said.

EY said the withdrawals in the region, in terms of the number of deals, had actually improved. By its own records, the company said 62 per cent of deals were withdrawn in 2011 and 55 per cent last year. It remained at 55 per cent in this year's first half.

Looking ahead, Parker said there were some "silver linings" as some firms that were desperate for capital might sell at attractive valuations.

Partridge said he was positive about seeing a pick-up in mergers and acquisitions in the second half of the year.