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Cathy Holcombe

Western companies seeking mergers and acquisitions (M&A) in Asia may have to just 'shut their eyes and take the plunge' if they ever hope to close a deal.

 That is because it is virtually impossible to accurately predict the true value of a business when currencies and risk profiles are in constant flux, multinationals were told yesterday at the 1998 Asian M&A Forum.

 'No valuations are justified on their own merits - not one,' Jardine Fleming head of regional corporate finance Mark Dowie said.

 'All [significant M&A deals in Asia] relied on synergies.'  What a post-crisis Asia does offer is opportunities for strategic alliances with regional companies that are rare when corporate growth is exploding in Asia.

 For example, brokers associated with Dairy Farm International Holdings' purchase this year of a stake in an Indonesian supermarket chain recall the Indonesian currency moved nearly 2,000 rupiah against the US dollar during negotiations.

 While a deal was eventually done in US dollars, Dairy Farm was left exposed to currency risk because revenues are denominated in rupiah.

 Jardines took the plunge, analysts said, because the opportunity to buy an existing franchise simply would not exist in calmer markets.

 'If you have a golden opportunity to get into a market that you never had before, you may have to take some bets,' Mr Dowie said. A theme that came out of the two-day conference was that strategic investors - those seeking to build up a presence for their product in Asia - are much more willing to make deals in an uncertain outlook than pure financial investors.

 As one of the speakers, Schroders investment banking head Ian Carnegie-Brown quipped: 'We use the word 'strategic' when we couldn't make the numbers add up.'  In the wake of the Asia crisis, M&A teams in the region have been busier than ever as debt-laden companies consider selling businesses to foreign investors for the first time.

 Being busy does not necessarily mean closing more deals. Daniel Schwartz, editor and chief of conference sponsor M&A Asia magazine, points out optimistically that deals worth $37.77 billion have been struck this year, compared with $39.53 billion worth of deals for the whole of last year.

 But many of the speakers did not express the same sense of progress.

 'We see a lot of opportunity but deals are difficult to close,' said Deloitte Touche Tohmatsu's Lawrence Chia.

 The biggest stumbling blocks are questions over value.

 'Sellers have had a hard time accepting that businesses could be worth what they invested in them in dollar terms - not to mention the sweat and work put into them,' said Merrill Lynch director of mergers and acquisitions Robert Lin.



Foreigners urged to take plunge in starting mergers