Outbound investment by Asian corporates set to continue, despite tough economic conditions
||Fewer Asian acquisitions of non-Asian targets have taken place, but intra-regional activity still evident |
||Sentiment, more than practical funding concerns, seen as an impediment to deal-making |
Hong Kong, 19 March 2009
Executives around the Asia Pacific region see potential for an increase in outbound investment by Asian companies during 2009, although the global economic downturn has sharpened the differences of opinion in countries around the region, a new KPMG study reveals.
In the report, entitled Asia Pacific's New Corporate Landscape: Asian Outbound M&A, 63 percent of respondents said that they expect Asian outbound acquisitions of Asian targets to increase in the coming year, while only 8 percent expect a decrease.
East Asian respondents were the most bullish on the prospect for outbound deals, while respondents based in Australia were more pessimistic. According to the survey, 50 percent of Australian executives see the outlook for M&A weakening. By contrast, more than 70 percent of respondents in South Korea, mainland China and Taiwan believe that outbound activity within Asia will increase over the next year.
Respondents cited Chinese companies as most likely to step up their M&A activity within Asia Pacific in 2009. However, Japanese corporates are still regarded by one-third of respondents as most likely to lead outbound acquisitions of targets beyond the region.
"Our research sheds some light on people's perceptions about the emergence of Asian corporate investors," says Julian Vella, KPMG's regional head of Corporate Finance. "People acknowledge the emerging role of China, but it is fair to say that many Chinese companies are still investing tentatively and more likely to make deals at home or within the region. By contrast, Japanese companies have the experience and the willingness to invest further afield, including into larger and more mature markets. The current strength of the yen has put many Japanese companies in an even better position to expand."
Outbound investment slowed during the second half of 2008, both in terms of volume and value and Asian acquisitions of non-Asian targets fell particularly sharply. Having roughly fluctuated between USD 4-6 billion per quarter since 2005, activity dropped in late 2008 and in the final quarter just eight deals were completed, with a combined value of USD 1.1 billion. The value of intra-regional deals held up more strongly after its peak in late 2007, with around USD 5 billion worth for each of the first three quarters, dropping to USD 3.9 billion in the fourth quarter.
In this context, 80 percent of respondents admitted to having abandoned plans for investments as a result of the changing economic situation.
This is reflective of the wider slowdown in M&A occurring globally. KPMG International's latest Global M&A Predictor, which was issued on 12 January, predicted that M&A is likely to bottom out during the second or third quarters of 2009, albeit at heavily discounted valuations, with a full recovery unlikely to occur until the end of the year or early 2010. 1
Mr. Vella agrees that there is reason to hope that activity will pick up somewhat over the course of the year. "Almost half (45 percent) of the respondents that had suspended M&A deals over the past six months said they had done so because of poor market sentiment rather than for practical reasons," says Mr. Vella. "Only 19 percent said funding considerations had caused them to change their course of action. It seems to suggest that some people are waiting in the wings and may be in a position to make deals, at the right price, in the coming year."
In this respect, executives see Asian outbound M&A occurring across a wider spread of sectors such as IT and communications, rather than traditional forays into Financial Services or natural resources. "There has often been a perception that Asian companies are driven to invest overseas in order to secure access to resources or to acquire technology and know-how," remarks Mr. Vella. "Our survey suggests that these motivations are secondary in most cases. Asian corporates are conducting M&A to pursue growth opportunities and increase their market share. That will remain a valid rationale for investment, even in a recessionary environment."
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1 "Global deal activity set to hit bottom in Q2/Q3, with gradual recovery from late 2009, claims KPMG's Global M&A Predictor," KPMG International, 12 January 2009