Asia Trounces Europe, U.S. With Surprise Record Deal Spree
(Bloomberg) -- After the Covid-19 pandemic pulled down the curtain on dealmaking in the first half of the year, an unexpected bright spot emerged in the third quarter: Asia.
Companies in Asia Pacific have announced $404 billion of deals since the start of July, marking the busiest third quarter on record, according to data compiled by Bloomberg. The volume of deals in the region has climbed nearly 11% from a year earlier, while those in Europe and the Americas have plunged.
Coronavirus remains a towering obstacle, and geopolitical tensions between the U.S. and China have made some transactions harder to execute, if not impossible. Still, dealmakers are hardly sitting idle.
“We are seeing a healthy amount of deal activity within Asia Pacific across sectors less affected by the pandemic, particularly in technology,” said Jung Min, co-head of Asia ex-Japan mergers and acquisitions at Goldman Sachs Group Inc. based in Hong Kong. “We’re also seeing Chinese companies becoming a lot savvier about which deals can get done internationally.”
In tech, Japan’s SoftBank Group Corp. announced the sale of its chip division Arm Ltd. to Nvidia Corp. for as much as $40 billion. Indian billionaire Mukesh Ambani has turned heads by attracting more than $20 billion of investment in Jio Platforms Ltd., the wireless arm of his Reliance Industries Ltd. empire, and more recently to its Reliance Retail Ventures Ltd. unit. E-commerce, one of the beneficiaries of coronavirus-driven lockdowns, is at the center of Ambani’s vision.
Food retail has also proved resilient. Seven & i Holdings Co.’s $21 billion purchase of Marathon Petroleum Corp.’s Speedway gas stations, announced in August, gave the company a commanding lead in the U.S.’s convenience store sector. The deal followed the $5.4 billion takeover of Japanese convenience store operator FamilyMart Co. by Itochu Corp. via a successful tender offer made in July.
Even though China’s economy has recovered more quickly than others from the impact of the Covid-19 crisis, Chinese dealmaking has turned inward. Several countries have tightened scrutiny of inbound investment, and Chinese firms listed in the U.S. are feeling the strain from disputes between Beijing and Washington. While these factors have helped drive a wave of take-private transactions, headline-grabbing cross-border M&A has for the most part given way to more pedestrian corporate deals.
After the Arm deal, the biggest transactions on this year’s Asia-Pacific league table are linked to a reorganization of China’s pipelines. PetroChina Co. and Sinopec, the country’s biggest oil and gas companies, inked deals worth $56 billion to sell their pipeline networks to a new national carrier known as China Oil & Gas Pipeline Network Corp.
Such restructuring transactions are usually labor intensive and fees tend to be low, according to Joe Gallagher, head of APAC M&A at Credit Suisse Group AG based in Hong Kong.
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Global deals in the past three months have bounced back from a lackluster second quarter, with volumes more than doubling. A broader and deeper revival of dealmaking may depend not only on M&A-friendly policy, but on dealmakers themselves.
“Until people are able to travel again, it’s hard to imagine a boom in cross border M&A,” Gallagher said. “In the current environment it’s more challenging to get deals done, unless they involve a local buyer and seller.”
Cross-border dealmaking is the lowest it’s been since 2013, down 20% in the year to date compared with the same period last year, Bloomberg data show.
Chinese companies are still keen on outbound M&A, particularly related to the Belt and Road Initiative, Gallagher said. In August, China Three Gorges Corp. agreed to buy 13 Spanish solar park assets owned by X-Elio Energy SL, in a deal that could become one of the few Chinese acquisitions in Europe this year. The state-owned power company is also exploring selling a stake worth as much as $4 billion in its overseas asset portfolio, people familiar with the matter have said.
“As the pandemic related disruption stabilizes, and market volatility recedes, company boards in China and across the region will become increasingly confident in pursuing larger transactions,” said Tom Barsha, co-head of M&A in APAC at Bank of America Corp. based in Hong Kong. “Despite the macro challenges, the appetite for M&A, both regional and cross border, is steadily picking up.”
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