Asia-Pacific investors look to M&A in euro zone

The relatively low valuations of European assets and opportunities arising from European companies’ divestments of their quality non-core assets present attractive M&A options for discerning buyers willing to commit to a transaction, according to the second annual global M&A survey conducted by the Economist Intelligence Unit on behalf of Clifford Chance. 

EIU canvassed the views of senior executives at close to 400 large companies globally from a wide range of industries. Over one-half of companies represented in the survey have annual revenues in excess of US$1 billion (Bt30 billion). 

 

Why Europe?

 

The financial crisis in the euro zone and unresolved instability continues to dampen appetite for M&A in Europe and around the world with the latest figures representing the lowest quarterly global M&A levels since 2009, according to Mergermarket. 

Yet only 9 per cent of Asia-Pacific survey respondents do not consider Europe an attractive place to do M&A deals. In the past year, the UK has been the top target jurisdiction for Asian companies, followed by Germany and France. The appeal of UK companies stems in part from the fact that the country has been less affected by the euro-zone crisis and is seen as having a more open foreign investment environment. And, generally, they have healthy balance sheets, with some Citi analysts forecasting these firms will hold 150 billion pounds by year-end.

Gaining technology and know-how is a key driver for acquisitions in Europe, as selected by 43.4 per cent of Asia-Pacific respondents, particularly in countries such as Germany where several deals have been seen including Korean conglomerate Hanwha’s acquisition of solar panel maker Q-Cells and China’s Sany Heavy Industry’s acquisition of Putzmeister, a leading manufacturer of concrete pumps.

Gaining market share is another key driver with 28.7 per cent. This is particularly relevant for Asia-Pacific companies in mature markets such as Japan that are looking offshore for future growth given the limited growth prospects domestically.

Obtaining strong name brands is important for 26.2 per cent of Asia-Pacific respondents and a strategy for many Chinese companies looking to grow their business. 

“Going overseas is unavoidable for Chinese companies to succeed, grow, improve competitiveness and to move up the value chain. The easiest and safer way for doing so is by tapping into the resources of international companies to gain strategic management skills, brand and market access,” said Ling Ho, a Hong Kong IP partner. 

 

Bargain opportunities

 

The risks in Europe today are opening up opportunities for bold investors to acquire assets at attractive valuations. About 43 per cent of global respondents say the challenging socio-economic conditions are increasing their appetite for European M&A. 

About 72 per cent Asia-Pacific respondents consider that assets in Europe are either undervalued or their valuations are about right, and 71.3 per cent expect that asset valuations will either stay the same or decrease over the next two years. 

“This means we should continue to see opportunistic acquisitions by Asian investors into distressed European situations over the next few years.”

Asian firms have healthy balance sheets with 87.1 per cent of Chinese respondents and 80 per cent of Japanese preferring to use cash reserves to finance M&A transactions. Yet given all the strong drivers and positive sentiments, M&A transactions into Europe have not materialised and Asia-Pacific firms are still holding back.