Asia Pacific dealmakers fear M&A slowdown will continue

CJ

28/03/2018 08:20

* Worst start to year in Asia-Pacific since 2014
    * China leads fall in dealmaking
    * Trade war worries weigh on market

    By Kane Wu
    HONG KONG, March 28 (Reuters) - Dealmakers in Asia-Pacific
have suffered their worst start to the year since 2014 and they
fear the slowdown will continue as tougher regulatory scrutiny
and rising trade war concerns hurt the region's outbound
dealmaking.
    Asia Pacific's outbound deals dropped by 32 percent both in
value and number of deals - a fall led by China, home to the
region's most active buyers since 2015, whose companies launched
nearly 20 percent fewer cross-border deals than by this time
last year, according to Thomson Reuters data.
    "The geopolitical backdrop and the increasing trade war
rhetoric will likely have an impact on cross-border M&A,
especially for transactions involving U.S. targets," said Joseph
Gallagher, head of Asia Pacific M&A at Credit Suisse.
    Earlier this month, U.S. President Donald Trump cited
national security concerns for blocking a $117 billion hostile
bid by Singapore-based chipmaker Broadcom Ltd  AVGO.O  to
acquire rival Qualcomm Inc  QCOM.O .  urn:newsml:reuters.com:*:nL8N1QU4DN
    It was the latest in a series of deals that were rejected by
the United States this year, including Ant Financial's $1.2
billion proposed acquisition of MoneyGram International Inc.
    Overall M&A volume in the region involving any Asian party,
either as a target or a buyer, slid 1.4 percent to $195 billion,
the data showed.
    Only one deal in the region's top 10 - the $9 billion
purchase by Zhejiang Geely Holding Group Co Ltd  GEELY.UL  of a
9.7 percent stake in Daimler AG  DAIGn.DE  - was a cross-border
transaction.
        
    HURDLES FOR CHINA        
    Chinese dealmaking has been hit particularly hard, with many
of its erstwhile acquirers unwinding their global empires while
those still hungry for deals face higher hurdles.
    "There is a lot of pressure on the Chinese buyer to show
they can get U.S. dollars and there are aggressive transaction
terms, including shareholder agreements, deposits, break fees
etc," Gian-Marc Widmer, head of international M&A at Citic
Securities, told a conference in Beijing earlier this month.
    Chinese buyers are now often asked to have large deposits
offshore that can be withdrawn on demand instead of just showing
commitment letters from state lenders as previously happened,
according to people involved in cross-border transactions. 
     "Sellers will be more selective in choosing private-sector
partners ... " said Credit Suisse's Gallagher.
    One-time acquirers currently focused on unwinding include
HNA Group Co Ltd  HNAIRC.UL , the airlines-to-banks
conglomerate, Dalian Wanda Group Co Ltd, which has bought
cinemas and sports agencies, and CEFC, an oil trader with
ambitions to be China's next oil major.
    Wanda brought in investors including internet giant Tencent
Holdings Ltd  0700.HK  for a $5.4 billion, 14 percent stake in
its commercial properties unit - the cornerstone of Wang's
empire.  urn:newsml:reuters.com:*:nL4N1PO48T
    HNA Group has sold more than a tenth of its holding in
Deutsche Bank  DBKGn.DE  as well as offloading stakes in two
Hilton-related units, Hilton Grand Vacations Inc  HGV.N  and
Park Hotels & Resorts  PK.N  for a combined $2.5 billion. 
    Meanwhile, CEFC has become a takeover target itself for a
state-owned buyer since its chairman was put under investigation
for economic crimes earlier this year, leaving uncertain the
outcome of its announced $9.1 billion deal for a stake in
Rosneft.  urn:newsml:reuters.com:*:nL8N1R46B2 urn:newsml:reuters.com:*:nL8N1R166Q
    
    REGIONAL HOPES
    While Asia's outbound play appears to be limited, regional
deals could be on the rise, said bankers. 
    Multinational corporations across various sectors continue
to overhaul their strategies, which could lead to more deals,
said Kerwin Clayton, JP Morgan's co-head of M&A Asia Pacific.
    China Resources Beer (Holdings) Co Ltd  0291.HK  is in talks
to acquire Heineken NV’s  HEIN.AS  China business in a potential
$1-billion-plus deal  urn:newsml:reuters.com:*:nL4N1QR3VM, while bankrupt American
retailer Toys 'R' Us Inc is looking for buyers for its Asian
business.
    “We are seeing an encouraging level of activity from
multinationals looking to re-position their operations in China
through deepening their arrangements with their existing Chinese
partners or through establishing new ventures with local
competitors,” said Colin Banfield, Citigroup's head of M&A Asia
Pacific.
    Citigroup ranked No.1 on Asia Pacific's M&A league table,
advising on deals totaling $10 billion, followed by Ernst &
Young and UBS.

    

 (Reporting by Kane Wu; Editing by Jennifer Hughes and Stephen
Coates)
 ((kane.wu@thomsonreuters.com; +85228436590; Reuters Messaging:
kane.wu.thomsonreuters.com@reuters.net))