Asia-Pac M&A volume set to rise by 33 percent in 2012

Merger and acquisition volume in the Asia-Pacific region, excluding Japan, is set to rise by a third next year after dipping in 2011, Thomson Reuters/Freeman Consulting estimates showed, as cashed-up Asian companies step up acquisitions using depressed asset prices.
China's insatiable demand for natural resources will keep mining bankers busy next year, while the country's vast consumer sector will lure global corporations to the world's second-biggest economy. Most bankers say their deal pipeline is strong and there is an increased level of discussions and desire to do deals. Despite the cash pile, however, it may not be easy to convince boards to do a deal, given the uncertain economic environment.
--- China the most active market, followed by Australia
"Overall, I am bullish and there is lot of activity," said Colin Banfield, head of M&A for Asia-Pacific at Citigroup. "What I worry is that the European situation is not resolved yet. And although it presents buying opportunities, it's never good for cross-border M&A when there is macro-economic and structural uncertainties and risks in the target market," he added.
After a strong start to the year, deal volumes fell as the escalating euro zone crisis turned companies cautious about M&A. As a result, announced M&A deals in Asia-Pacific ex-Japan fell 9.9 percent to $552.1 billion year-to-date, according to preliminary Thomson Reuters data. China was the most active M&A market, cornering a fourth of the total deal volume, followed by Australia.
Goldman Sachs was the top M&A adviser in Asia-Pacific, followed by UBS and J.P. Morgan. "Valuations have been more reasonable, deals haven't gone bad, and Asian buyers haven't overpaid for assets," said Nikhil Nath, head of Asia-Pacific ex-Japan mergers and acquisitions at Nomura Holdings Ltd. "I think there will be an uptick in activity," he added.
The Thomson Reuters/Freeman Consulting survey shows M&A in Asia-Pacific is expected to rise by 33 percent in 2012, compared with increases of 21 percent in Americas and 18 percent in Europe, Middle East and Africa. With Europe and the United States battling tough economic environments, global companies are seen launching take-over bids in Asia, where earnings growth is relatively much stronger.
"Companies in the West generally have good earnings and strong balance sheets - their biggest challenge is growth. M&A is an alternative way for them to grow their businesses and take market share," said Todd Marin, head of investment banking for Asia-Pacific at J.P. Morgan.
"This makes an M&A transaction a less risky alternative to investing in new plant or equipment where you will need overall growth in market demand to support that investment," he added. Inbound deals into Asia dropped 12 percent this year to $423.7 billion, broadly mirroring the fall in Asian deal flows. While Asian corporate balance sheets and net debt positions make M&A an attractive proposition, the uncertainty surrounding the euro zone crisis will make it hard for companies to contemplate cross-border deals in the near future.
"Although valuations are attractive in markets such as Europe and elsewhere, the level of uncertainty in such markets may hold back people from doing deals immediately," Citigroup's Banfield added. "And, therefore, they will look closer to home and I expect there will be good level of intra-Asian M&A activity and selectively cross-border," Banfield added.
Citigroup is advising Sinopec Corp and ENN Energy Holdings on a rare $2.2 billion unsolicited bid for China Gas Holdings Ltd, an example of an intra-country move. Asian corporates' cash/total debt level stood at about 35 percent in the second quarter of 2011, compared with an historical range of 25-38 percent, Morgan Stanley estimates, a sign of robust balance sheets of Asian companies.
But M&A is equally a function of confidence as much as the level of cash and valuations. "There's no doubt that moods in boardrooms ebb and flow with the volatility that we have been seeing in global economies in general and Europe in particular," J.P. Morgan's Marin said. "Should the uncertainty continue for too long, companies will lose their ambition or some of their desire to use their cash or add debt to their balance sheets," he added.