M&A trends in Asia Pacific 

I’m David Linke. I'm the National Head of M&A at KPMG in Australia.

Market trends

I think the market at the current time from an M & A perspective is quite patchy. I think if you reflect on what's happening you've got financial sponsors and private equity houses generally having difficulty raising debt at attractive rates of finance to fund their acquisitions. So the financial sponsor space has been patchy over the last six months. I think if you'd asked me the question a year ago I think you would have said Australia would have avoided the worst effects of the European global financial crisis. I think it's now caught up with us to a greater extent. I think if you look at offshore financial sponsors such as pension funds they have not been as active in the market as well. I think if you adopt the view that the long-term foreign exchange rate from an Australian perspective is about eighty cents to the U.S. dollar which a lot of people suggest is an appropriate benchmark. Then those transactions done at the higher FX rate than that, you know have some FX rates built in them. So and I think the other interesting thing is the Indian and recently the Thai businesses seeking to secure supply in the energy and resources space have also been active. If you'd gone back a couple of years the Chinese were incredibly active in the E&R, coal space in the country. I think what's happened now is the Indians are a lot more active and have been looking to acquire either the raw materials to secure their supply or also the infrastructure assets such as ports.

Asia Pacific Trends

In terms of the sale of shares by foreign investors in Australian companies, but not just Australian companies but across the region, if you think about it, ASPAC has really been at the forefront of this particular issue from a revenue authority perspective. You look at China. They've got Circular 698 about the taxing the indirect disposal of shares in the Chinese company. You've got India with the e-trade decisions using the Mauritius Holding Company structure, the Vodafone case and also the proposal to insert in a new direct tax code, this provision which taxes indirect disposals of shares where greater than 51% of the value is Indian, Indian sourced, and then you've got the Australian private equity determinations which were recently – you know a number of them were recently released in final by the Australian authorities and they confirm that in certain circumstances the Australian authorities will seek to apply our general anti-avoidance provision to those particular transactions. So you have in a sense three revenue authorized significant revenue authorities in the ASPAC region looking closely at this issue.

The future

It will be interesting to see whether other European authorities, the North American authorities take onboard some of these points and actually start taking up the mantle in that part of the world as well about these particular transactions. I mean one interesting issue that's arisen is a view from the Australian authorities that in a leverage buyout situation any profit arising on the sale of shares is not on capital account. It's on revenue account from an Australian perspective. And you know a number of other jurisdictions around the world adopt the view that private equity type investments are clearly on capital account, okay, and the taxation is relatively clear. And so the question will be will the revenue authorities in other parts of the world look at what the Asian jurisdictions are doing and seek to use some of that logic.