Hong Kong: Asia Pacific mergers and acquisitions (M&As), excluding Japan, surged 50% in the first half of 2007 to a record $253 billion (Rs10.37 trillion), with Australian buyout deals and an overseas push by Indian firms expected to keep activity at high levels.
Australia accounted for $76 billion worth of deals in the half, followed by China ($55 billion) and India ($39 billion), according to preliminary data from Dealogic.
“This year has been characterized by a good spread of volumes. India’s been very strong and success has begotten success,” said Matthew Hanning, head of Asia Pacific M&A at UBS Investment Bank.
UBS, which has built a top Australian business to compete with local stalwart Macquarie, opened up a big lead in the advisory rankings, working on $62.4 billion worth of deals, compared with $46.5 billion for second ranked JPMorgan.
Macquarie ($34.6 billion), Deutsche Bank ($32.8 billion) and Morgan Stanley ($32.8 billion) rounded out the top five, Dealogic said. Private equity accounted for 11% of first half activity, compared with 8% a year ago, but below the 20% of deals it is involved in globally.
Inbound cross-border activity increased to a first half record $58 billion, more than double a year ago. Outbound volumes were also $58 billion, up 46% from the first half of 2006. While Australia has seen a steady flow of private equity deals, India has stood out for both outbound and inbound investments.
Vodafone Group paid $12.9 billion this year for a controlling stake in Hutchison Essar, India’s fourth largest mobile phone carrier. And after Tata Steel’s bold $12 billion takeover of Anglo-Dutch group Corus last year, Indian aluminium maker Hindalco Ltd agreed to buy Canada’s Novelis Inc. for $5.9 billion.
“I’m a firm believer in China and India’s future development,” said Ed King, head of Asia Pacific M&A for Morgan Stanley. “With rapid economic growth, it is inevitable for Chinese and Indian companies to seek expansion globally.”
Australia has become a common hunting ground for private equity firms because of its large corporate targets, well developed capital markets, and the lack of regulatory hurdles for buyout houses. But after a slew of deals, there are signs that investors are demanding higher valuations.
Shareholders prevented a Macquarie-led group from taking over national air carrier Qantas Airways Ltd earlier this year, a deal that would have been worth $9 billion.
US private equity firm TPG on Thursday pulled out of a bid for Coles Group Ltd, likely leaving the Australian retailer in the hands of rival Wesfarmers Ltd ,which has bid $16.5 billion for the company in the country’s biggest takeover.
“What we are seeing in Asia is part of a global theme,” said King. “Shareholders are taking a more active role in buyouts and boards are becoming more cautious in their recommendations.” High stock prices in other parts of Asia Pacific could also put off some buyers.
“With capital market valuations at such high levels, you wonder if international companies in a sector like the consumer space will pay 40-plus times earnings to buy something with assets in China,” said Hanning.
But no one is doubting the insatiable appetite of private equity firms for regional assets, after they raised $37 billion for Asian investment last year, Asian Venture Capital Journal said.
“The private equity firms are here to stay,” said King. “However, near-term deal activity will be significantly affected by how supportive the credit markets remain.”