M&A deals increase as big Chinese enterprises splurge and ‘Belt and Road Initiative’ gathers momentum
Increase also brings tightening of regulations on IPO vetting process, valuations and connected transactions
Hong Kong has had periodic dips in mergers and acquisition (M&A) activity, but many analysts have expressed optimism. “We saw a declining trend since 2014/15 in terms of number of M&A deals, but are seeing an upward trend brought about by the ‘Belt and Road Initiative’ [Beijing’s global trade strategy], and increasing acquisitions by large mainland Chinese enterprises,” says Raymond Cheng, managing director of HLB Hodgson Impey Cheng.
While the rise in deals involving mainland Chinese companies is seen as a boon for business, this has also come with a tightening of regulations on the IPO vetting process, valuations and connected transactions, in addition to increased attention on certain industries such
“The Hong Kong M&A market was still active after the US 2008 economic crisis, but the short-term decline in [the] number of Hong Kong M&A deals was mainly attributable to the tightening of regulations which deal with local issues,” Cheng says.
In its Asia-Pacific M&A Review 2017, Herbert Smith Freehills predicted a slowdown in China outbound acquisitions with tightening controls on capital outflows and greater regulatory scrutiny. However, the law firm also saw opportunities in back-door listings and reverse takeovers; for privatisation of undervalued companies, and among new economy businesses such as fintech.
Many analysts have suggested that Hong Kong’s over-regulation could hurt M&A chances in the long run, but are these fears warranted?
“Hong Kong regulators are doing a good job in maintaining our high standards by tightening and closing loopholes in regulations,” Cheng says. “In the short run, this may reduce the number of M&A deals, but in the longer term, the enhanced regulations serve to strengthen the role of Hong Kong as a premier capital raising centre and contribute to a healthier M&A market.”