Asia Pacific Leading the Global Recovery

Mirza Diran (Advisory Partner)

Jakarta Post - 6 May 2010

 

While the Western countries still felt the pinch of the 2008 global crisis in 2009, the Asia Pacific countries did not disappoint. The PricewaterhouseCoopers Asia Pacific Merger and Acquisition (M&A) Bulletin reported that major Asia Pacific economies like China, Australia, Indonesia and India, while experiencing a slowdown, continued to register positive growth throughout the global financial crisis of 2008 and 2009.

Asia Pacific bourses gained 53% in 2009, reversing a similar-sized loss the year before. Two-thirds of these gains resulted from a strong first half. China led the charge by shooting up 61% in the first half and ended the year up 76%. Indonesia and Taiwan each gained close to 90%, while Hong Kong and Singapore gained over 50% each. Australia’s All Ordinaries and Japan’s Nikkei increased relatively modestly by 33% and 24%, respectively.

The value of M&A activities in the Asia Pacific region for 2009 was US$498 billion, or 3% lower than in 2008 and a fifth lower than in 2007. This was due to the global financial crisis that hit in mid-October 2008.

M&A activities, however, picked up in the second half of 2009 in terms of both deal value and volume. M&A activities reached $263 billion in the second half of 2009, or 12% higher than the $235 billion recorded in the first half, and a 30% increase from the $203 billion recorded for the same period in the previous year, although these activities remained at a lower level than in the periods prior to 30 June 2008.

Asia Pacific’s share of the global M&A pie grew from 23% in 1H-2009 to 28% in 2H-2009, at the expense of deals in America and Europe. The situation showed the relative depth of economic recessions in America and Europe and the speed of recovery of M&A activities in Asia Pacific. Asia Pacific M&A in 2H-2009 was dominated by transactions in the resources and financial sectors. Some of the leading Asia Pacific economies are discussed below.

In China, domestic and inbound M&A deal volumes in China in 2H-2009 returned to 2008 levels, indicating that the impact pf the global economic downturn on M&A in China was short lived. The M&A activity was driven by domestic Chinese strategic and financial buyer deal activity.  Although the value of outbound deals is still only around a third of the value of domestic and inbound transactions, outbound deal activity reached record levels in 2009.

In Japan, M&A total announced value dropped significantly in 2009. Deal characteristics in 2009 include interest of certain industry in acquiring overseas competitors to increase global sales, further progress on domestic mergers to strengthen businesses and financial base, and equity injections into struggling firms as a means of securing business assets, sales network, customers, technologies and brands.

India, meanwhile, witnessed a significant fall in deal activity in 2009, primarily in terms of value, despite a slight revival in the second half of the year. Analysts, however, said that the relatively healthy macroeconomic indicators in India and other emerging markets are anticipated to create greater inbound of M&A in 2010. The telecom, oil and gas and banking sectors appear to be key focuses of attention, with the healthcare, education and mid-market IT service segments also attracting deal interest.

Here in Indonesia, the M&A activity reached its peak in 2008 but the activities dropped in 2009 due to the global crisis. Higher deal activity and value were announced during the second half of 2009, marking an increase from the first half of 2009. The key deals occurred in the energy and mining, industrial products, telecommunications and financial services. The energy & mining and plantation sectors are forecasted to be the sectors with the most M&A activity in Indonesia, as the recovery of the global economy will drive up fuel and energy consumption. Political stability, however, will be the key to maintaining the stability of the M&A climate in Indonesia in 2010.

The 21st Century has long been hailed as the Pacific Century, with the economic and geopolitical centers of the world progressively shifting from the Atlantic to the Pacific Ocean. The 2008-2009 global financial crisis and recession, and the resultant public debt and slow recovery in the West, have certainly accentuated this inevitable tectonic shift.

With Asia leading the world out of the shadows of this unprecedented crisis, and Asian financial institutions and governments emerging relatively unscathed, a new enthusiasm for deals has emerged, especially in economies with large domestic markets – China, India and Indonesia. These countries are more capable of rebalancing the fall in Western exports with domestic consumption. We have seen M&A opportunities in the financial services, infrastructure, retail, healthcare and real estate sectors. Outbound investments from Asian countries will continue to increase in the coming years, in tandem with stronger currencies and a heightened need for resource and food security.

Many people wish to erase 2009 from their memories. Others, however, see it as a game-changing year filled with opportunities. If the brewing sovereign debt crisis in the West and the growing asset bubbles in the East can be contained, 2010, the Chinese Year of the Tiger, will be a roaring year for M&A in Asia Pacific.