Hong Kong has work to do to maintain M&A momentum

Hong Kong has a lot of work to do if it wants to maintain its edge as a destination for mergers and acquisitions activity and stave off competition from Singapore, experts say.

Since the 1997 handover from British to Chinese rule, the value of deals involving Hong Kong companies has risen from US$31.06 billion in 1997 to US$151.59 billion in 2016, according to Thomson Reuters data.

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In order to maintain that momentum, the city must become more adept at developing new industries such as financial technology that can attract fresh investment to drive deal flow, according to Tracy Wut, M&A partner at law firm Baker McKenzie.

Singapore has taken a lead in developing new sectors, particularly in technology, by creating a vibrant start-up ecosystem with ample funding and institutional support from both the public and private sectors.

“Singapore is home to many start-ups and technology companies. For overseas companies or mainland companies wanting to conduct M&A deals in the fintech and technology sectors, Singapore has become the natural choice,” said Wut.

“This is an opportunity missed. Hong Kong needs to catch up in the financial technology field and I would encourage the government to provide a lot more incentives and support, whether it be from tax policy or the provision of office space at reduced rates.”

Keith Pogson, senior partner of accounting firm EY, said the city has to upgrade its offerings if it wants to maintain its overall advantage in terms of M&A.

“As Chinese domestic businesses have become more sophisticated and for some, more specialised in acquisitions, Hong Kong’s role as a gateway has started to wane,” he said.

Pogson said if Hong Kong wants to maintain its competitiveness, it has to make sure it has professionals who can give independent advice on the more complex deals and to offer the companies different ways of financing their deals.

“The development of alternative financing solutions, whether that be driven by banks, public or private markets, and the increasing existence of relatively cheap middlemen participants to connect these solutions to each other.”