Merger activity in Asia and China remains high even as regulatory uncertainty weighs on tech sector, says JPMorgan
Merger activity remains high in Asia, including China, amid Beijing’s ongoing regulatory crackdown on the tech sector, which has exacerbated investor concerns, according to one of JPMorgan’s top bankers Chase in the area.
The level of activity is the same as at the start of the year, if not “a little more intense”, according to Kerwin Clayton, co-head of Asia-Pacific mergers and acquisitions (M&A) at JPMorgan.
“A more difficult sense of agreement towards certain sectors can lead to a misconception that things are overall slow and that it just hasn’t been. One big difference in China is that five years ago there were a limited number of sectors where mergers and acquisitions were active. . Now mergers and acquisitions, in one form or another, are happening across industries, ”Clayton said. “These counterbalance, if not overcompensate, areas that might be slower at any time.”
Do you have questions on the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new curated content platform with explanations, FAQs, analysis and infographics brought to you by our award-winning team.
Domestic transactions have been a major driver of activity this year, with more than 4,200 transactions worth US $ 272.6 billion through August 12, according to financial data provider Refinitiv. This is the largest number of domestic transactions in more than a decade.
“Domestic consolidation in China is partly due to the fact that companies are finding it harder to compete in their current state,” Clayton said. “Other areas in China where we’re seeing more activity include sponsor-to-sponsor transactions where one private equity fund is willing to buy from another; government-led consolidations or restructurings; and multinational divestitures. “
Outbound deals have remained low key this year, with 265 deals worth $ 25.9 billion, according to Refinitiv. This is the smallest number of deals until mid-August since 2014 and follows a sharp drop in outbound deals from China in 2019 and 2020.
Another potential driver of mergers and acquisitions in Asia this year are Special Purpose Acquisition Companies (SPACs), which have raised more than $ 121 billion this year alone, albeit at a slower pace in recent months.
PSPCs are created only to collect financial war treasures and purchase assets within a limited time frame, but have concluded few transactions for Chinese assets. For example, Tim Hortons China agreed to be bought out this week by a US-listed PSPC in a rare transaction involving a company operating on the mainland.
“The SPAC wave started later in Asia than in the West, where activity levels were high throughout 2020. There has been a slowdown around the world this year, including in Asia,” said Clayton. “Some activities remain, particularly in South East Asia and India. Strong stories that want capital can get capital whether it’s through an IPO or a PSPC. “
The record year for mergers and acquisitions in China comes as Beijing cracked down on the country’s tech sector and implemented sweeping changes to overhaul its rules for overseas listings by companies that hold personal data for 1 million or more Chinese. The move led a number of Chinese companies to delay or abandon initial public offerings planned in the United States.
PwC said this month that regulatory crackdown is also starting to slow merger activity, with some companies suspending deals as uncertainty surrounding the tech sector weighs on asset prices.
“Businesses need to look at their structure. They have to look at their operations. They must make strategic decisions in terms of the allocation of their capital. Where should I focus my activities to develop and grow my business? What pieces might I want to cut, give or give away to free up capital? “Said David Brown, head of Asia-Pacific transactions at PwC.” There is a lot of transactional activity that is driven by these kinds of strategic decisions. and are accelerated by everything that goes around [Covid-19] and elsewhere.”
At the same time, S&P Global Ratings predicted this month that a closer examination of mergers, overseas listings and anti-competitive behavior in China’s tech sector could intensify competition in the sector, as companies focus on organic growth and greater internal investments.
“I think people will continue to focus on areas where [deals] It could happen. And China-focused private equity will continue to seek international assets with which they can do more in the country, ”said Clayton, JPMorgan’s banker.
“Buyers will continue to look for companies that they feel are in demand and that can be highly valued in the domestic market. This will help to further export,” he said. “In addition, some entities have bought companies internationally and wish to divest them – this has contributed steadily to M&A activity involving China over the past three or four years and will continue.”
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice on China and Asia for over a century. For more SCMP stories, please explore the SCMP app or visit the SCMP Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.