Mergers and acquisitions in Asia to continue as companies, deal makers seek to make up for a year of Covid-19 disruptions

Merger and Acquisition (M&A) activity is set to continue its strong start in Asia this year as private equity firms and firms seek to deploy financial war chests amassed in the wake of the coronavirus pandemic that spooked economic activity in the slowed worldwide last year, according to one of Deutsche Bank’s top bankers in the region.

Corporations and private equity firms have borrowed large amounts of cash and refinanced debt over the past year as interest rates remain at all-time lows and central banks pumped huge amounts of liquidity into financial markets to revive economies around the world.

It’s likely there won’t be a major slowdown, especially in North Asia, as financial markets appear to be quite strong, capital can be raised, and China’s economy is doing pretty well, according to Mayooran Elalingam, head of Investment Banking Coverage and Advisory at Deutsche Asia Pacific Bank. Interest rates are also unlikely to rise in the short term.

Do you have questions about the biggest topics and trends from all over 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.

“We’ll see some bumps along the way,” said Elalingam. “[Private equity] used aggressively last year when things were turbulent. If they continue to do this, even if companies suspend, they will keep the market moving until they have some volatility or the stock price falls. “

M&A activity has seen its fastest start since 2015, with companies engaging in more than 7,300 transactions valued at $ 570.8 billion in Asia Pacific ex Japan as of June 15, according to data from Refinitiv. In comparison, there were more than 6,800 deals worth $ 350.8 billion in the first half of 2020.

“I’ve been doing this for a while. I haven’t seen as many groups of buyers looking at assets on these reviews,” Elalingam said. “Before, people in Asia didn’t like auctions, and it was bilateral. Now people say I get the best price, let’s go ahead and do it quickly.”

The story goes on

Private equity firms and an inflow of funds raised by Special Purpose Acquisition Companies (SPACs) have increased the number of bidders for business this year, with asset auctions running at an “accelerated” pace of weeks rather than months per round said Elalingamam.

SPACs have been one of the hottest fundraising trends since early 2020, with so-called blank check companies raising more than $ 106 billion in the first half of this year. According to Refinitiv, that adds up to $ 81 billion in 2020 as a whole and $ 80 billion in the last 15 years.

“The SPACs are in every deal we offer, especially with the sellers. SPACs are a buyers group. There is a lot more capital outside of the SPACs that are faster, bigger and easier solutions,” Elalingam said.

Blank check companies are more successful outside of auctions, with deals taking longer periods of time, he said.

“You are here to stay,” said Elalingam. “People have a good understanding that they won’t work for every scenario.”

Aside from SPACs looking for targets, private equity firms remain very active, he said.

Mayooran Elalingam, Head of Investment Banking Coverage and Advisory at Deutsche Bank for Asia Pacific. Photo: Handout alt = Mayooran Elalingam, Head of Investment Banking Coverage and Advisory at Deutsche Bank for Asia-Pacific. Photo: Handout

“There is a PE in at least half of the deals [private equity] somewhere. You sell or buy the asset or invest with someone, ”Elalingam said.

As a result, Deutsche Bank has launched several strategic hires to expand its coverage, with about two-thirds of its new hires this year in Hong Kong, according to Elalingam.

According to Haitham Ghattas, Head of Capital Markets Asia-Pacific at Deutsche Bank, the bond capital markets got off to a solid start again this year as the recovery in issues in the second half of 2020 continued into the first half of this year.

“The first half of 2021 was stable [year-on-year] Growth, “Ghattas said.” These are healthy year-on-year growth rates, they are not stratospheric. “

G3 bond issues in Asia – bonds denominated in US dollars, Japanese yen or euros – rose by 14 percent to $ 268.9 billion by Friday, according to Refinitiv.

“A lot of companies in the area are pretty conservative about making sure they have adequate funds,” said Ghattas. “I don’t think that will go away completely in 2021. I think customers will continue to have to look at their liquidity position. They will likely have to continue to cover liquidity shortages.”

At the same time, some heavily leveraged sectors, such as the Chinese real estate market, have reduced their issues somewhat.

“The sector as a whole has built up a lot of leverage. The business models are based on using a lot of leverage, ”said Ghattas. “I think the actions we have seen from the central authorities in China are clearly aimed at reducing the risks in the industry.”

Haitham Ghattas, Head of Capital Markets Asia-Pacific at Deutsche Bank. Photo: Handout alt = Haitham Ghattas, Head of Capital Markets Asia-Pacific at Deutsche Bank. Photo: Handout

Earlier this year, Deutsche Bank was involved in several deals with Chinese real estate borrowers to make a longer-dated debut – five to seven years – to devalue its balance sheet and extend its maturity profile, he said.

At the same time, Hong Kong was the smallest number of IPOs since 2016, with just 39 debuts in the first half of the year, according to Refinitiv. Nonetheless, the deals grossed $ 17.2 billion by June 25, the highest amount since the first half of 2011.

Video-sharing platform Kuaishou Technology raised $ 6.2 billion when it went public in Hong Kong in February, with its shares rising 161 percent on its debut. It is the largest offer in the world this year.

However, several big names have chosen to be listed before Hong Kong, at least initially in the US.

The Chinese ride-hailing giant Didi Chuxing has applied for up to $ 4 billion in an IPO in New York, and the logistics start-up Lalamove from Hong Kong has applied for a US listing in confidence.

There is a pipeline of companies in the starting blocks to go public, especially since demand has been in the consumer, healthcare and technology, media and telecommunications (TMT) sectors over the past year, Elalingham said.

“If you just go through the VC portfolio in Hong Kong and China [venture capital] and private equity, they still have a lot of companies to get through, “he said.” It’s not going to be just a hassle. “

There is still a desire for companies in the region to issue stocks and longer-term valuations remain robust, Ghattas said.

“As you are coming out of a Covid world, we are clearly seeing a sharp increase in M&A activity,” he said. “This in turn stimulates increased equity activity to fund these mergers and acquisitions or to fund refinancing and deleveraging requests.”

This article originally appeared in the South China Morning Post (SCMP), the most authoritative language coverage of China and Asia in more than a century. You can find more SCMP stories in the SCMP app or on the SCMP’s 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.

Comments are closed.