Asian groups to increase M&A activity - Survey by PWC

More Asian financial services companies say they will make acquisitions this year in spite of the global economic crisis as they plan to take advantage of the downturn to expand, according to a survey by PwC.

Among Asian financial groups, Taiwanese and Chinese companies are the most likely to undertake merger and acquisition activity in the next 12 months while Indonesia and Vietnam have overtaken China and India as the most popular places to do deals.

With relatively stronger balance sheets, Asian financial institutions are seeking to use the crisis as an opportunity to snap up cheap assets and grow their businesses. But many are reluctant to buy because of a lack of confidence and market uncertainty.

According to PwC, 42 per cent of the 215 Asian financial institutions polled forecast that they will do a deal this year, up from 38 per cent in last year’s survey which was conducted in the beginning of 2008 before the region felt the full-force of the financial crisis.

Despite this optimism, Matthew Philips, PwC China partner based in Shanghai, said the value of transactions for this year was set to fall to the level of 2005 and 2006, which reported $38.7bn and $64.5bn worth of deals respectively, as companies are more likely to do smaller transactions.
Asian financial institutions struck $99.1bn worth of deals last year, down from $125.9bn in 2007, due to notable declines in Japan and South Korea and Taiwan. ”I now expect to see an increased number of smaller deals to build share in underweight markets or segments, rather than the game changing deals that one might have expected at the beginning of the crisis as western players retreat,” said Mr Philips.

PwC said companies were looking to do deals to build scale and develop new markets. Nearly half of the companies surveyed said expanding their businesses was their key strategy this year.
Only 22 per cent have frozen investment and just 2 per cent said they would exit Asia.
In China, deals flow is expected to remain strong although it is forecast to be shy of last year’s $34.6bn. Nearly 70 per cent of companies expect to enter new markets this year, although they remain cautious after a few major international investments, such as the $5bn investment by China Investment Corp, the country’s sovereign wealth fund, in Morgan Stanley, had turned sour.

”The travails of high-profile deals announced at the outset of the crisis will serve as a cautionary tale for those considering potential targets, said Mr Philips. ”[But] from my personal experience in advising a number of Chinese institutions, we are seeing an uptake in interest looking at opportunities overseas