Despite Global decline in mergers and acquisitions, Asia remains a favorable destination for assets
Hong Kong, 3 April 2012 — Asia's deal volume saw a fall of 30% quarter on quarter in Q1, 2012, and while among the worst performing regions saw no deterioration in total deal value, according to the Ernst & Young M&A Tracker, released today. Globally deal volumes were down by 24% while values were down 13% quarter on quarter (q-on-q).
The Ernst & Young M&A Tracker is compiled by Ernst & Young and the M&A Research Centre (MARC) at Cass Business School from six different transaction data sources. Quarterly M&A activity levels recorded in Bloomberg, CapitalIQ, Dealogic, Mergermarket, Thomson and Zephyr are consolidated and compared to activity levels in Q1 2010 using a proprietary weighted-average methodology.
Marc Symons, Leader of Asia-Pacific Financial Services Transaction Advisory Services says, “Despite the global decline in M&A, Asia is still a focus for many international investors. In the Financial Services sector, Asia is less impacted by the Eurozone and US decline. Asia-Pacific including Asia and Oceania accounted for 29% of the announced Global deal volume or 19% in terms of deal values in the first quarter of 2012.”
The level of global cross-border and cross-regional activity has been remarkably steady over the last nine quarters, since the start of the Ernst & Young M&A Tracker in Q1 2010. “Asia remains an attractive destination for assets. Financial services acquirers are looking into Asia-Pacific and there are certainly more opportunities in the next 12 months ahead.”
Funding and liquidity
Another notable trend in Asia is the funding mechanism. Most of the deals are financed by 100% cash and the values seemed to be lower. 2011 saw a historically high proportion of cash only deals reflecting depressed share prices which made stock-financing an unattractive option for bidders. 55% of global deals in Q1 2012 are all-cash, compared to 65% in the previous quarter. In Asia, the level of all-cash financed deals amounted to 50% in the first quarter of 2012 compared to 72% in the previous quarter.
“As interest rates remain favorable and that access to lending has improved acquirers are trending a little more to financing acquisitions rather than paying all cash. Overall financial institutions see limited funding to invest in acquisitions. Taking into consideration of regulatory backdrop such as Basel III and Solvency II, some financial institutions are required to dispose of assets in order to meet the regulatory requirements.” Symons explains.
“For the strongest businesses, the historically low cost of debt and improving equity markets have driven funding strategy away from utilizing the significant cash reserves that many well rated companies are sitting on, towards external sources of finance. This reflects an increasing confidence about access to capital markets for transactions."
Asia-Pacific Financial Services Sector M&A Outlook
“Eurozone institutions continue to divest assets in Asia-Pacific, we will anticipate a robust Financial Services deals in the next 12 months. Countries such as Japan and Korea, with saturated markets, will target intra-region assets within Asia-Pacific before extending platforms overseas, while China will continue to target both inter and intra regional deals.”
Symons concludes: “The limited financial services M&A dollars that are available are generally being directed towards assets in Asia. Investors see Asia as the best region to invest their M&A dollars as return on investment and growth opportunities are strong in Asia when compared to the rest of the world.”
Financial Services sectors in Asia to watch out for in the next 12 months include asset management and insurance.-ends-
Further information from Ernst & Young M&A Tracker on Asia-Pacific
Deal volume in Australia fell by 27% q-on-q in Q1 2012, with the total announced deal value ($m) falling by 42% in the same period, driven also by a decline in average deal value of 21%. The average deal value of Australian targets is now at $211m, which is 32% lower than the long-term average for the country (equal to $312m).
The level of cross-border (and cross-regional, which is very similar in Australia due to the few M&A-active countries in the Oceania region) transaction activity in Australia remains high in Q1 2012, at 37%. Also the percentage of all-cash financed deals is currently at 72%, which represents a 27 percentage point increase from the previous quarter.
Following 2010 and 2011, during which deal volumes were consistently 14% or higher than Q1 2010 – the base quarter of the MARC M&A Tracker, deal volume in China fell 39% q-on-q to an all-time low. The total announced deal value amount also fell, albeit slightly less steeply, by 25%. The average deal value rose to $138m per deal, up 21% from the all-time low of $114m in Q4 2011.
The ‘speed of completion’ Tracker for China experienced a reversal of its long-term decreasing trend, and is currently up by 6% q-on-q. The level of all-cash bids fell by 11 percentage points, mirroring the trend of most other countries.
Following the trend of the previous quarter, the level of cross-border activity in China (domestic and inflow) fell two percentage points q-on-q in Q1 2012, reaching a new all-time low of 16%. The level of cross-regional deal flow remained stable at 4%. Both cross-border and cross-regional levels into China have been relatively low since the start of the MARC M&A Tracker, reflecting the difficulties for foreign firms and investors in entering the Chinese domestic market.
India defied the global M&A trend, with both volumes and values increasing during the first quarter of 2012. The MARC M&A Volume Tracker was marginally up by 3% whereas the total deal value announced increased by a huge 1089%. This incredible increase was largely driven by the announcement of Vedanta Resources’s mega-merger, combining Sterlite Industries, Sesa Goa, Vedanta Alumina and MALCO, and including a transfer of Vedanta’s stake in Cairn India.
The mega-merger also resulted in a significant jump in average deal value for the quarter, up from an all-time low of $56m in Q4 2011 to $639m in the first quarter of 2012.
The level of cross-border and cross-regional activity into India fell q-on-q by 21 and 16 percentage points, respectively. Currently, 37% of all transactions involving an Indian target company are cross-border and 23% cross-regional. The level of all-cash financed deals – defined as the percentage of the total deal value announced by a public acquirer where the means of payment is 100% cash financed – is at an all-time low of 5%, driven by the Sesa Goa transaction being paid in stock.
Deal volume in Singapore fell by 21% q-on-q in Q1 2012, with the total announced deal value falling by 54% in the same period. The average deal value for transactions involving a target company from Singapore fell by 42% to $95m, which is the lowest average deal value for the country since the beginning of the MARC M&A Tracker in Q1 2010.
The fall in both deal volume and value appears to be partly driven by a decline in cross-border activity, which fell by 12 percentage points q-on-q in Q1 2012 and is currently at 38%. Cross-regional inflows fell to their lowest level since the start of the MARC M&A Tracker, currently at 10%. The level of all-cash financed deals remained relatively stable at 92% in Q1 2012. The ‘speed to completion’ Tracker increased by 7% in Q1 2012, hence transactions involving a Singaporean target company are taking on average less time to complete as compared to the last quarter.
Notes to editors
About the Ernst & Young M&A Tracker
The Ernst & Young M&A Tracker was compiled for Ernst & Young by MARC, the M&A Research Centre at Cass Business School from six different transaction data sources. Quarterly M&A activity levels recorded in Bloomberg, CapitalIQ, Dealogic, Mergermarket, Thomson and Zephyr are consolidated and compared to activity levels in Q1 2010 using a proprietary weighted-average methodology.
The Ernst & Young M&A Tracker, weights each database according to the total value of deals in their datasets from the start of the M&A Tracker in Q1 2010. This results in a broad picture of transaction activity. Transaction activity levels are rebased (indexed) to 100 at the base period - Q1 2010, hence a figure of 115 shows a 15% increase compared to base period, and a figure of 85 shows a 15% decrease compared to the base period.
The Ernst & Young M&A Tracker only considers ’change-of-control’ deals and excludes privatizations, self-tenders, share buybacks, spin-offs, split-offs and recapitalizations. Transaction deal value has been set to a minimum of $10m. Deal activity is measured from the date of announcement and rumored deals are excluded. Transactions are credited in the country and sector of the target only. Q1, 2012 data was cut off on 15 March, 2012.
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