China has competition in M&A in Asia

Updated: 2015-04-29 11:27

By Jack Freifelder in New York(China Daily USA)

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Mergers and acquisitions involving Chinese companies have drawn a lot of attention in the first third of the year, and the outlook remains bright.

But other emerging markets also are off ering attractive investment opportunities, according to a managing director with an international investment bank.

Euan Rellie, a senior managing director with BDA Partners, an Asia-focused investment banking firm, said the global landscape for mergers and acquisitions (M&A) is changing "quite dramatically".

"China and India have been on the front page a lot," Rellie said. "We keep ourselves very busy in China. But having said that, we're seeing some dramatic changes. People don't want to put all of their eggs in the China basket, and a lot of people are saying they're worried about China risk. I wouldn't discard that risk at all.

"I think there's a very significant chance of a dramatic real estate correction in China," Rellie said. "In terms of the overall level of M&A activity, the Asian markets still represent just a tiny portion of the addressable market. But China is a pretty good place to do business."

The Asia Pacific region, excluding Japan, was responsible for $656.8 billion in deals last year, with China accounting for more than 45 percent ($307.4 billion) of deal flow, according to Dealogic, an investment research firm.

As of April 21, China's M&A volume in the technology sector had nearly doubled year-over-year to $26.4 billion (up from $13.7 billion in 2014).

Rellie spoke at the 2015 M&A Advisor Symposium on Tuesday at the New York Athletic Club along with other panelists in a session titled Global Growth Markets.

Hany A Fam, president of MasterCard Enterprise Partnerships, said that his firm is looking at environments where there's "inherent inefficiency".

"We identify the leading enablers and look at their core competencies, and we bring together odd bedfellows - companies you wouldn't necessarily think about putting together," Fam said. "Places like China already have a burning platform for M&A deals, but they need to understand their own challenges."

Global M&A transactions surpassed $3.6 trillion last year, the highest total since 2007, according to Dealogic.

Overall M&A activity has increased 26 percent year-over-year, with healthcare, real estate, and the telecom and technology industries among the most popular sectors.

Deals in the US totaled $1.61 trillion, an increase of 42 percent from 2013 and the highest full-year volume on record, data from Dealogic showed.

Tom Speechley, a partner with the Abraaj Group, a New York-based private equity investment firm, said: "The US is always going to be the most important economy. It's the most advanced and it will remain that. But people should recognize that there's a lot going on in the rest of the world that is extremely interesting and potentially very exciting from the investment perspective.

"If you can understand the nuances of a region, you can make great investments there," Speechley said.

Henny Sender, chief international finance correspondent for the Financial Times, said: "China is now shifting from an export model of development to domestic demand growth, and it's not going to be easy. We're moving to a more sophisticated model now, and China is using the Asian Infrastructure Investment Bank as part of the solution. That has huge implications for investors."

The International Monetary Fund's April 2015 World Economic Outlook report estimates that Chinese economic growth will slow to 6.8 percent in 2015, as China makes the transition to a "slower but more sustainable growth path".

Rellie said that nearly half of his firm of about 80 employees is stationed in China.

"Today we're seeing lots of opportunity in Asia," Rellie said. "You see Japanese companies investing outside Japan, and others, but we're certainly not giving up on China. There's still a heck of a lot of momentum in the Chinese economy and a lot of M&A activity to take place in China over the next five to 10 years.

"For us, it's driven more by cost of capital," he said. "Local governments in the US are thrilled to have Chinese companies invest and build factories, and there's abundant cheap capital in Asia."

China has competition in M&A in Asia

(China Daily USA 04/29/2015 page3)