Clifford Chance Survey Shows M&A Asian Growth To Continue Growth

LAWFUEL – The Legal Newswire – Asia Pacific M&A will continue to grow, says survey Clifford Chance/FinanceAsia M&A survey shows continued optimism from advisers and corporates alike, but reveals difficulties in executing deals in the region

Hong Kong: A new independent survey has found little evidence of dented confidence in Asia’s M&A markets amongst the region’s corporate and advisers, despite recent market turmoil – in fact, quite the opposite.
The survey, conducted by global law firm Clifford Chance and FinanceAsia magazine, showed that the majority of respondents expected to see similar or greater levels of inbound, outbound and intra-Asia Pacific M&A in the coming one to two years.

However, the survey also revealed the challenges faced by corporates and advisers in Asia Pacific, with respondents citing regulatory, governance and cultural issues as obstacles.

* Inbound M&A from non-Asia Pacific acquirers was seen as the area most likely to decrease in the next one to two years – but even in this area 75% expected similar or greater levels of investment, with only 25% of respondents predicting a decrease.
* Mainland China remained the most popular predicted destination for M&A activity, expected by 79% of respondents to be in the top three markets, with India and Australia/New Zealand on 56% and 31% respectively.
* 86% expected sovereign wealth funds to be aggressive acquirers in the year ahead, but over two-thirds of these respondents expected them to meet resistance from regulators and national protectionism.
* The main headlines of the study are attached.
“The optimism expressed in the survey matches our current experience of high levels of M&A activity, and – at this stage – belies the initial fears created by the subprime crisis,” said Roger Denny, Head of M&A, Asia, at Clifford Chance.

“However, as longstanding advisers in Asia, we also appreciate from experience the challenges that investors encounter when trying to complete deals in the region.”

“In my view, Asia’s markets have a clear opportunity in the coming year – if regulatory and governance issues can be tackled while the enthusiasm and funding for M&A activity remains high, we should continue to witness strong levels of investment and growth in this region.”

“Sovereign wealth funds were highlighted by the survey and their activities are causing a great deal of comment at present.”
“However, it’s not the first time we’ve seen a new class or group of investors come to the marketplace and provoke a wave of nervousness amongst politicians and others.”

“Whilst we have seen a trend towards economic nationalism, our survey shows a very strong expectation that sovereign wealth funds will be aggressive acquirers. Almost three-quarters of respondents highlighted national protectionism, however, as the most important type of resistance that they will face.”

“With just a little more communication and transparency, I’d expect these investment bodies will come to be more accepted as an additional and important source of funds for business growth, both here and in other parts of the world.”

The Clifford Chance/FinanceAsia M&A Survey 2007: Headline findings M&A investment: expect more activity Given current market conditions, respondents were asked about the levels of M&A investment they expected over the next one to two years.

* On cross-border inbound M&A from non-Asia Pacific acquirers, 75% expected to see increased or similar levels on the previous year (45% expected an increase, 30% expected similar levels and 25% expected a decrease).

* On cross-border outbound M&A from Asia Pacific acquirers, 89% expected to see increased or similar levels on the previous year (58% expected an increase, 31% expected similar levels and 11% expected a decrease).
* On intra-Asia Pacific M&A, 91% expected to see increased or similar levels on the previous year (59% expected an increase, 32% expected similar levels and 9% expected a decrease).
* In all sectors, advisers were more optimistic than corporate executives.

Mainland China expected to attract the most M&A activity When asked which three markets would attract the most investment over the next one to two years, respondents answered as follows:

* 79% mentioned Mainland China
* 56% mentioned India
* 31% mentioned Australia/New Zealand
* Other markets mentioned in the expected top three: Japan 24%; Vietnam 23%; Hong Kong 22%; South Korea 15%; Singapore 14%; Taiwan 11%; Indonesia 11%; Thailand 7%; Philippines 4%; Malaysia 4%.
Financial services the most attractive sector for M&A activity When asked which three sectors would attract the greatest M&A investment in the next one to two years, respondents answered:
* 57% mentioned financial services
* 29% mentioned natural resources
* 28% mentioned manufacturing
* 25% mentioned property
* 24% mentioned technology/IT


industrial 20%; telecoms 15%; mining 14%; oil and gas 14%; construction 10%; insurance 8%; healthcare 8%; pharma 8%; utilities 8%; media/communications 7%; retail 7%; funds 6%.
Financing environment will become more difficult Over the next one to two years, respondents expected the financing environment to become:

Much easier 7%
Slightly easier 20%
No change 22%
Slightly more difficult 46%
Much more difficult 5%

Corporate executives were more optimistic about the financing environment than advisers, with only 42% expecting it to be slightly or much more difficult compared to 55% of advisers.
Advisers find Asia Pacific a harder region in which to execute M&A than corporates 58% of advisers agreed that Asia Pacific was a more difficult region in which to source and execute acquisitions, compared to only 42% of corporate executives.

Corporate executives found Asia Pacific a more difficult region because of governance issues (63%); regulatory issues (54%); funding issues (38%), cultural issues (38%) and lack of suitable personnel (38%).
Advisers found Asia Pacific a more difficult region because of regulatory issues (78%); cultural issues (60%); governance issues (60%); lack of suitable personnel (24%); and funding issues (16%).

Sovereign wealth funds will continue to be aggressive acquirers 86% of respondents thought sovereign wealth funds would continue to be aggressive acquirers in the coming one to two years, with national protectionism and regulatory approval cited as the most likely obstacles faced by the investment bodies.

Hedge funds and activist shareholders have changed the way companies are managed 61% of respondents thought the presence of hedge funds and activist shareholders had changed the way in which Asia Pacific companies were managed, with the largest differences seen in companies’ governance practices (cited by 67% respondents), quality of management personnel (52%) and financial control (52%).

Standards of corporate governance have increased Within corporate respondents, 84% thought that standards of corporate governance had improved in the previous year, with 77% attributing this to investor/acquirer demands and 60% attributing the improvements to regulatory changes. Advisers were slightly less positive, with only 66% thinking that standards had improved, but for largely the same reasons as corporates.

Asia Pacific experience critical for corporate hires Corporate executives were split almost evenly as to whether there was adequate M&A talent available in the region, but agreed that Asia Pacific experience was critical (cited by 88%) followed by language abilities (54%).
Advisers expect teams to stay same size or expand 96% of advisers expected the size of their teams to increase or stay the same in the coming year, with only 4% of respondents expecting to see a decrease.
Respondent profile
237 corporate executives and advisers responded to an online survey conducted by independent research agency Ipsos between 20 and 27 September 2007.

Of the final sample, 57 corporate executives responded from a wide variety of commercial sectors, while 180 senior advisers responded from investment banks, funds, corporate banking, alternative investment funds and the legal/advisory sectors.
38% of respondents were based in Hong Kong, 19% in Singapore, with the rest based in Asia, Australasia, North America and Europe.

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