Asia M&A Forum - key takeaways from day one

Author: IFLR Correspondent | Published: 2 Mar 2016
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Best practices in addressing corruption risk

  • Corruption risk is on the rise in Asia, with over 100 pending FCPA investigations in the region compared with 40 in Africa;
  • But the US has seen relatively few M&A related enforcement actions since 2014. Connected hires and corporate hospitality featured prominently in 2015 actions;
  • FCPA remains the most feared of the international frameworks. The UK Bribery Act has not lived up to expectations in terms of enforcement, even though its prohibitions are wider than the FCA;
  • There has been a seachange in the last few years insofar as business people realising the risk and engaging outside counsel more, as personal liability increases;
  • Companies’ counsel are increasingly spending up to six months on anti-corruption diligence in red flag countries China and Indonesia.

The art and science of post-merger integration

  • As M&A volumes continue to rise, acquirers are dedicating more time and resources to post merger integration;
  • But a one-size-fits-all approach won’t work, and bidders should prioritise the process;
  • Planning should include attempts to retain talent within the target company and pure financial incentives are often not enough;
  • Sometimes the best solution is to treat the two companies as separate entities with separate HR strategies and different remuneration strategies;
  • Some companies, especially serial acquirers, have dedicated post-acquisition integration teams. But in other cases the local teams are left to manage the process themselves.

Tech M&A: key issues in today’s convergence-driven TMT market

  • Tech M&A is on the rise. It’s driven by consolidation, with a large number of smaller players. Also driven by private equity interest in the industry;
  • Asia is still difficult to acquire in the TMT sector. Regulatory restrictions are high, especially in Indonesia.
  • Employment restrictions are also holding acquirers back;
  • Cfius arises frequently. It’s a difficult hurdle to get over. Some deals expected to be caught by it end up sailing through, while others are unexpectedly caught by the US rules.
  • Data security regularly features on operational lists for risk registers, but doesn't feature heavily on due diligence which tend to be quite high level.
  • Look at what other approaches successful acquirers took, especially when investing from the US to Asia. Don't’ be afraid to follow the same principles and practices.

Vietnam and TPP: A new wave of M&A

  • The inflation rate now being kept at one percent, while the Vietnamese dong is stable. There has been a huge accumulation of non-performing loans;
  • The government is focusing more on the private sector by working with Asian Development Bank;
  • Historically they didn’t regulate the IT sector, but this has seen the strongest growth.
  • The new Investment Law and New Enterprise Law exempt foreign investors from applying for an investment certificate;
  • The new investment regime allows foreign corporates to get a controlling stake in local companies in various sectors, such as insurance and manufacturing, with registration for sensitive sectors taking 15 days and five for less important ones; 
  • There is huge diversification in the Vietnamese market and foreign investors, mainly from China, are looking how they can diversify in the country.

Developments in outbound M&A into Europe

  • Chinese companies are increasingly looking to buy international brands to enhance their own image and competitiveness;
  • New investment in private equity funds from finance buyers is showing such a huge increase, which has totaled $192 billion in deals and 1062 transactions, a 69% change from 2014;
  • Targeted areas in Europe remain TMG, consumer healthcare and real estate;
  • China’s One Belt One Road will offset the country’s slowing growth domestically and it will give rise to investment opportunities. It will close the gap between the coastal regions and the rest of China;
  • There is no framework or a blueprint for the execution of this initiative, but it will have a big impact and will be felt across Europe.

Privacy and data security issues in M&A deals

  • A lot companies’ data assets are digital so due diligence involves trade secrets and intellectual property;
  • The EU set up a data protection framework in 1995 and a lot of countries have followed, with Hong Kong’s modelling the EU’s; 
  • The fines for breaching data protection laws now reach up to four percent of your global turnover;
  • Foreign organisations headquartered in the EU will still be fined even if even the breach has been committed in Hong Kong.

Distressed M&A: Leveraging opportunity in a down market

  • In some areas of China, political jurisdictions cannot be relied upon because they aren’t predictable and, on top of that, they are organs of the local governments;
  • The distress situation often lacks transparency; it’s not unusual to see subsidiaries disappear due to an accumulation of debt;
  • There is a host of regulatory issues arising from governments with large ownership stakes in public companies that have made it difficult to deal with issues relating to corporate structure;
  • There is a lot of activity in the non-performing loan space and a shift from offshore debt to onshore debt, which has created a need for regulators to step in.