IFLR Asia M&A Forum: Day 2 highlights

Author: | Published: 26 Feb 2014
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Trends in China outbound

  • Chinese companies looking outbound last year primarily looked to western Europe, the Americas and Asia;
  • Commercial rationale is playing a larger part in China outbound deals, particularly for private companies. This includes state-owned enterprises, although they are still driven by political agendas;
  • Chinese deals are moving up the value chain and are looking at deals in the $50-500 million space;
  • Chinese acquirers are now looking more closely at post-merger integration. Deals that tend to be more successful are those that have stemmed from an existing partnership.

FOCUS: Korea

  • The country’s M&A market remains active, with private equity funds competing among themselves for attractive assets;
  • There is a high barrier to entry in Korea, with regulations quite protective of local companies;
  • But rules are being relaxed to encourage more activity. For example, amendments to the Capital Markets Act might allow Korean private equity funds to acquire assets (at present, they can only acquire shares);
  • Key opportunities include K-pop and K-entertainment, as well as lifestyle-focused investments such as luxury real estate and boutique hotels;
  • Hedging the Korean won remains expensive.

Addressing deal completion risk

  • Break fees have become common in Asian deals, but they are seen as an insurance policy - if a deal doesn’t reach completion, no break-up fee will compensate;
  • Deposits, however, are less common. They’re used when there are questions around the credit worthiness of the buyer, or when the buyer and seller don’t have a previous relationship;
  • Material adverse change clauses (Macs) are common in deals throughout the Asia Pacific. However they are typically business Macs, and are very narrow in scope;
  • While China’s merger review is the focus of many counsel, other Asian jurisdictions such as Singapore and Indonesia are also strengthening their anti-monopoly regimes.

FOCUS: Myanmar M&A in the pipeline

  • Companies approved by the Myanmar Investment Commission (MIC) receive benefits including tax concessions and the right to lease land for more than a year;
  • Non-MIC companies are sometimes preferred because of shorter timeframes for establishment, absence of an evaluation process, and lower capitalisation requirements;
  • The government is looking to streamline the companies registration process to a checklist, rather than a process involving evaluation by the relevant ministry;
  • Repatriation of capital from Myanmar, when it’s registered with the MIC, isn’t an issue. However there is no non-deliverable forward market for Myanmar, making currency volatility an issue. But as the currency is not convertible, it’s somewhat protected from the global forex market.

Competition regime developments in APAC

  • Antitrust reviews must be an important part of deal planning. The transaction timetable must take into account merger review filings and related documents;
  • There are emerging competition regimes throughout the Asia Pacific. In particular, Vietnam and Indonesia’s merger review regimes have novel provisions regarding market share;
  • If a long merger review period is expected, an employee strategy must be planned. Staff are likely to be unsure what is happening in the business, including whether the company will be sold off or even if they’ll have jobs;
  • Controlling the flow of information between signing and the close is essential. This might raise issues from a due diligence perspective.

FOCUS: Taiwan’s investment environment

  • Expect to see more M&A activity within Taiwan as founders and their families look to either exit or grow their businesses;
  • There will be more cross-strait deals with China. Taiwan only opened to direct investment or acquisitions by ChinaCos in 2009, and despite the obvious connection for local companies, only $900 million has been invested from China;
  • There’s a lot of interest in Taiwan from private equity and venture capital firms, because of its relative value versus other regions in Asia;
  • Compared with investing in China and Southeast Asia, Taiwan is considered a relatively safe bet in terms of its legal regime and political environment.