China SOE deals help push Asia M&A activity to new record in 2014

Deals surge as private equity funds exit holdings after corporate valuations recover from lows

PUBLISHED : Thursday, 08 January, 2015, 9:09am
UPDATED : Thursday, 08 January, 2015, 9:42am

Regional mergers and acquisitions hit a record high last year, spurred by low borrowing interest rates and a private equity sector keen to offload earlier investments as the global economy picked up pace post financial crisis.

In all, 3,250 deals worth a total of US$591.6 billion - up 43.3 per cent from 2013, topped by several state-owned enterprise mergers - marked the busiest ever deal-making year for the Asia-Pacific excluding Japan, according to research group Mergermarket's annual market report.

"Particularly over the past few years, the story was Asian conglomerates were targets, but now they are acquirers," said Mergermarket Asia-Pacific editor Mai Mizuta, citing last month's Thai Union Frozen Products' US$1.5 billion acquisition of US-based Bumble Bee Seafoods as an example.

The most active region globally was the United States, where M&A deals were up 56.6 per cent on 2013 at US$1.4 trillion, aided by several mega telecommunication mergers and a 158.5 per cent increase in inbound investment, the majority from fast-growing emerging markets.

Global deal flow, which at US$3.2 trillion still lagged the US$3.6 trillion hit in 2007, had almost doubled since stock markets bottomed out in mid-2009, Mergermarket said.

Deals worth nearly US$500 billion were attributed to private equity managers exiting their holdings after waiting for corporate valuations to recover from earlier lows.

In a separate report, Thomson Reuters estimated M&A activity in the Asia-Pacific, excluding Japan, totalled US$743.9 billion last year, up 62 per cent on its 2013 numbers. One possible explanation for the discrepancy with Mergermarket figures is that it only tracks deals worth more than US$5 million.

One noticeable laggard was Japan, where deal flow dropped 33.5 per cent from 2013 and inbound investment halved, Mergermarket said, as investors grappled with Prime Minister Shinzo Abe's economic reforms in a year of volatile currency swings.

Despite the likelihood of higher US interest rates making deal financing more expensive going forward, analysts are buoyant the momentum can be carried into the new year.

"Looking ahead, we expect the flow of transactions to continue as businesses throughout the region maintain their focus on strategic growth," said Rebecca Maslen-Stannage, a partner at law firm Herbert Smith Freehills.

"The outlook for M&A is particularly strong in developing markets in Southeast Asia, where governments have implemented significant infrastructure programmes and continued consumer demand from the growing middle classes drive activity."