Transactions Blog

Globally, financial services are undergoing unprecedented change.  At the same time, the eastward shift of economic power gives Asian financial services markets stronger growth potential than that of any other region.  As a result M&A is becoming an ever more important strategic tool for financial institutions in Asia.

Report key findings:

• Economic and demographic factors will drive strong growth in Asian financial services
• Domestic M&A looks set to remain the key driver of Asian financial services transactions
• Cross-border M&A in Asian financial services is expected to accelerate.  Bidders from more mature markets such as Australia, Japan, Korea and Singapore are being joined by European and American rivals.
• Capital restrictions are seen as the leading obstacle to M&A in the region, while talent management is seen as by far the greatest challenge for post-deal integration
• Despite regulatory and governmental activity, Asian financial services M&A is predicted to grow through 2011 and into 2012

 For more details, please check: http://www.pwc.com/gx/en/mergers-acquisitions-industry-trends/survey/index.jhtml

Download the full report: FS M&A Asia 2011 

With the global economy recovering, foreign strategic buyers are re-emerging the surface of the Chinese M&A market and are actively looking for expansionary acquisitions. Entering the Chinese M&A environment is however challenging due to:

• Industry structure and geographic scale
• Constant changing regulatory environment
• People versus systems
• Partners and alliances
• Compliance costs
• Potential traps on financial & tax information
• Proper structuring
• Intellectual property environment

 Although the global economic recovery will entice foreign strategic buyers to look for Chinese investment opportunities, all parties involved are notably more selective in their investments and will look beyond the valuations in order to identify fundamentally sound companies. Absent local presence sourcing good quality deals in a highly fragmented and widespread market requires a combination of in-depth local knowledge and an integrated local network. Moreover the ability to implement operational efficiencies can be dictated by the quality of the relationship with management and is often constrained by minority interests.

PricewaterhouseCoopers China – in close cooperation with the business development team and the Transactions practice of PricewaterhouseCoopers Belgium – can assist in this process of sourcing the attractive investment opportunities and to perform due diligence procedures to determine the optimal governance and operational structure post closing.

The PwC China M&A press release revealed that domestic and inbound M&A deal volumes in China (including Hong Kong and Macau) in the second half of 2009 are returning to robust 2008 levels, indicating that the impact of the global economic downturn on China M&A seems to have been short lived.

More than 1,800 domestic transactions (deals being intra-China or from HK to the mainland and vice versa) are likely to be recorded in the second half of 2009, for a total of about 3,200 mergers and acquisitions for the full year, compared to nearly 3,800 in 2008. Looking to 2010, domestic deal activity is expected to grow by more than 20% compared to 2009.

A continued decline however was noted for deals made by foreign strategic buyers (focussed on sorting out problems in their home markets) and also foreign financial players finding new deals harder to come by as gaps in pricing expectations between sellers and buyers continued. There are indications though that those foreign strategic buyers will re-emerge in greater volume and deal size soon, reflecting a pent-up appetite for China targets.

The China outbound growth story will continue and year-on-year outbound M&A growth of about 40 per cent is not an unlikely outcome. Whilst deals for energy and resources will continue to dominate, owners of the larger Chinese privately owned enterprises are looking for know-how and access to foreign markets, being encouraged by the Chinese government.