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China all alone in Asian M&A growth

By Zhou Yan (China Daily)
Updated: 2009-01-06 07:49

China's mergers and acquisitions (M&A) activity remained resilient in 2008 despite the global financial meltdown, making it the best performer in the Asia region, according to information company Thomson Reuters.

M&A activity in the country was at an all-time high of $159.6 billion worth of deals last year, 44 percent more than in 2007, compared with the year-on-year 11.1 percent fall in Asia, excluding Japan, Thomson Reuters said in a report.

"China was the only country in the region to experience growth in such a tumultuous environment, and it's also the most targeted nation in Asia with a 26.9 percent market share, " the report pointed out.

"The market's better performance is mainly due to the fact that the impact of the economic crunch started in the US is delayed when passing down to the domestic transaction activities, and the Beijing Olympics in August helped bolster the strong spirit of the market," said Xie Tao, PricewaterhouseCoopers (PwC) transactions partner based in Beijing.

Xie added that unlike in other markets, Chinese companies are not in dearth of cash, which is crucial for M&A activity.

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The largest transaction of the year was Aluminum Corp of China and Alcoa's stake purchase in Rio Tinto for $14.3 billion through their Singapore-based joint venture Shining Prospect Pte Ltd.

The country's inbound activity posted a 34.2 percent year-on-year increase, and made China a global investment haven. Cross-boarder M&A activity rose 51.1 percent from a year ago to $78.4 billion worth of deals in 2008.

"Protection policies to set barriers for cross-boarder M&As have been partly pared when facing the economic meltdown, which helped boost the outbound M&A deals for Chinese companies," said Xu Wenfei, an analyst at Beijing-based investment research and consulting firm China Venture.

However, transactions were unsurprisingly caught up in the second half of the year when the worst financial woes unfolded in September.

With 543 announced deals between July and November, transaction activity in domestic M&A dropped by a staggering 47 percent compared to the same period in 2007, although it followed a strong growth in the first half to reach 920 announced transactions, according to PwC's report.

"Activity levels dropped dramatically in the second half, largely as a result of regulatory policies to cool the economy in early 2008 amid the fallout from the global economic crisis, and a valuation gap arising from the unwillingness of domestic sellers to meet lower bids for buyers also contributed to the drop," Xie pointed out.

Looking to 2009, Xie predicts that overall M&A activity in China will remain slow in the first half of the year, but will pick up in the second half as pricing expectations align.

"We expect domestic M&A activity to recover quicker than other regions of the world mainly due to the government's 4 trillion yuan ($586 billion) stimulus package, and regulators having room to lower interest rates. Private equity deals may be the first to recover," said Christopher Chan, PwC's transactions partner.