insights into asia pacific m&aglobalmandatoolkit.cliffordchance.com/downloads/finance...insights...
TRANSCRIPT
Insights into Asia Pacific M&A FinanceAsia and Clifford Chance M&A Survey
Clifford Chance
2015 was a bumper year for M&A in the Asia-Pacific region. The boom in M&A in the region was largely
driven by a significant increase in the value of intra-regional deals, particularly group restructurings.
Outbound deals from Asia-Pacific strategic acquirers were also a key part of the market, with numerous US$
billion+ acquisitions by Chinese and Japanese companies. We expect the strength of outbound and intra-
Asian M&A to continue in the next year. This is supported by our survey, where 90% and 88% of the
respondents respectively expect an increase in, or at least the same levels of, activity for outbound and intra-
Asian M&A in 2016.
Challenges still remain though, with legal and regulatory enforcement on the rise, and with anti-corruption,
merger controls, foreign investment clearances, sanctions and comprehensive and reliable due diligence
being key issues to overcome for the successful completion of M&A. As the survey highlights, this puts much
greater emphasis on the need for experienced advisers in the region, who understand the markets, to ensure
a proper assessment of acquisition opportunities and to minimize the risks which naturally arise in making
acquisitions.
Another interesting feature of this year's survey is that the balance of power in M&A deals in the next 18
months is seen as shifting strongly in favour of the buy side, increasing in the survey over the past three
years from 60% in favour of the buyer to 79%. This is the highest we have seen in the nine years of
conducting the survey, so we expect to see more deal terms and protections swing in favour of the buyer
with, for example, more buyer friendly purchase price consideration mechanisms, material adverse change
conditions and warranty protections and limitations. That said, in the case of attractive businesses, we
expect auction processes to be able to generate strong competition and they will probably be more
favourable to the sell side. In this context, we have a separate annual survey of Asia-Pacific Market Practice
in Private M&A, which provides detailed analysis of deal terms and protections, which we would be happy to
share with you.
I look forward to hearing from you if we can support you in your assessment of M&A opportunities or if there
are any areas on which you would like us to share our insights.
M&A: Views from Asia Pacific
2 Insights into Asia Pacific M&A
Roger Denny
Head of M&A Asia Pacific
Clifford Chance
Key findings
3 Insights into Asia Pacific M&A
Bigger deal sizes. We’ve continued to see deal sizes get bigger, with more US$ billion+ deals this year in Asia Pacific
than before. With many companies pursuing global strategies, we continue to expect to see more big ticket
acquisitions particularly by Asian companies, both within the region and globally.
Inbound. China again remains the top destination with an increased aggregate of 65% respondents selecting it as
a top three destination for Asia Pacific inbound M&A, followed by India (33%). Interestingly, Australia/New Zealand
and Japan have both risen strongly on last year, with 31% and 22% respondents respectively picking them as popular
choices for inbound M&A. Hong Kong and Vietnam also feature strongly, with Indonesia still high at 27% but
significantly down on last year.
Outbound. Sentiment remains positive with 90% of respondents expecting an increase in, or at least similar levels of,
outbound M&A on the previous year. The US (87%), the Eurozone (63%) and UK (47%) continue as the most popular
target jurisdictions for outbound M&A, with the US and UK increasing significantly on the previous year. In light of the
drivers of M&A which were highlighted, the most popular being Asian companies adopting a global strategy and the
desire to find new markets, we are expecting even stronger outbound M&A in the next year.
Buyer in control. The balance of power is seen as shifting strongly in favour of the buyer in the next 18 months,
having increased in the survey over the past three years from 60% in favour of the buyer to 79%. This is the highest
imbalance we have seen in the nine years of conducting the survey. We do, however, expect strong competition in
auction processes for attractive assets and, therefore, a more balanced, or seller friendly, situation in those
circumstances.
Drivers. The biggest drivers for Asia Pacific outbound M&A remain Asian companies adopting a global strategy and
the desire to find new markets, followed by depressed valuations in target markets and the desire to secure
knowhow/technology and brands. The desire to find new markets and future growth is also driving inbound M&A and
64% of respondents believe Western companies are likely to continue their focus on their emerging market strategy,
notwithstanding the greater economic uncertainty in those markets.
Drags. Concerns about local protectionism and regulatory issues remains a major issue in cross border M&A and was
identified as having the greatest negative impact. Global and regional economic conditions and sellers' unrealistic
price expectations also featured next most strongly. Significant concerns were also raised about bridging cultural
differences in the acquisition process and the integration of companies acquired in the region was considered more
difficult than expected (60%).
Deal Structure. Full control of targets was the most popular structure according to 39% of respondents. Alternative
deal structures are also seen as viable, with joint ventures with a strategic partner and partnerships with private equity
and other financial investors the most preferred structures according to 25% and 16% of respondents respectively.
Keys for success. Comprehensive due diligence to ensure no surprises and a good acquisition team, including
advisers with local knowledge, were identified as the joint top factors to successfully complete deals in the region.
Whilst 60% of respondents felt integration in the region was more difficult than anticipated, the good news is that 65%
felt their acquisitions had been successful.
Clifford Chance
Expected M&A deal size over the next 12 months
Preferred methods
of financing
Factors for success
Good deal
structure and
protection in
legal
agreements
48%
Comprehensive due
diligence
63%
Good acquisition
team including
advisers with local
knowledge
63%
Managing and
clearing
regulatory
hurdles
42%
Managing
stakeholder
expectations
39%
Assured
funding
46%
Who is in control?
Balance of power will
be with
Buyers Sellers
US$100 million –
US$500 million
41.4%
< US$100 million
26.5%
US$500 million
- US$1 billion
22.4% > US1 billion
9.7%
Deals with strategic
/financial co-investor
Equity
Swap
Cash
reserves
DCM
ECM
Bank loans
60%
35%
40%
42%
55%
69%
21%
79%
Clifford Chance 4 Insights into Asia Pacific M&A 4
Other key findings
Clifford Chance
Sector trends
5 Insights into Asia Pacific M&A
31
39
26
16
10
11
6
7
4
2
65
49
52
40
23
27
15
10
11
8
1
Consumer, retail and leisure
Financial services
Technology, media and telecom
Pharma/healthcare
Real estate
Oil and gas
Power
Mining
Industrials and chemicals
Transportation
Other services
Greatest investment Greatest + 2nd greatest investment Total (Greatest + 2nd greatest + 3rd greatest)
Consumer, retail and leisure is identified as the top priority sector this year. It has now been the top sector for three years. This no doubt reflects the fact there are still
opportunities to find new markets and growth in the region and to take advantage of the increase in disposable incomes which, in the medium to long term, still remains
attractive. Retail deregulation in Vietnam could make the country very attractive, while populous countries like China, India and Indonesia will continue to drive activities in the
region.
Financial services and TMT came in a close second and third choice respectively, as indeed they have in the past three years. Many global financial institutions continue to seek
to reshape their businesses in light of regulatory changes and increased compliance risks and costs, and regional institutions are looking to grow their businesses through
acquisition, particularly in key new markets and product lines.
80
67
66
54
40
25
23
22
16
4
45
Pharma/healthcare has seen a number of
big mergers in the US and Europe, and,
although deal sizes in Asia are generally
smaller than these, there is a focus on
acquisitions as the sector consolidates
and as companies pursue a strategy to
take advantage of increasing spending by
governments and individuals on
healthcare in Asia and develop products
suitable for local markets.
With the market correction in the natural
resources sector, there may be an
opportunity for acquirers, although we
may need to see more stress in the
sector before a wave of deals are signed.
Clifford Chance
Overall, the outlook for inbound M&A from non-Asia-
Pacific strategic acquirers remains positive, with 81%
of respondents expecting an increase on the previous
year or at least similar levels.
Mainland China continues to be the top destination for
inbound M&A, increasing to 65% from 58% last year.
India was the second most popular target jurisdiction,
followed by Australia/New Zealand and Indonesia.
Interestingly, Australia/New Zealand and Japan have
both risen strongly on last year. Australia's devalued
currency is driving M&A, with activity in infrastructure,
agriculture, consumer and healthcare sectors.
Although there is interest in the commodities sector
after the fall in prices, we may need to see more stress
before a wave of deals sign.
Hong Kong, Vietnam and Singapore also feature
strongly. Indonesia remains popular but is significantly
down from last year's 47%, reflecting a general
lowering of the strength of many South East Asian
markets, which for several years has been a "hot" sub-
region both in Asia-Pacific and in the global context. In
aggregate, however, there is still considerable interest
in South East Asia and Vietnam and Singapore
featuring more strongly than last year.
Asia Pacific inbound M&A
6 Insights into Asia Pacific M&A
Mainland
China
65%
India
33%
12%
South Korea
18% Singapore
22% Japan
31%
Australia/ NZ
26% Hong Kong
10% Philippines 20% Vietnam
Indonesia
27%
5% Taiwan
Thailand 9%
Malaysia 9%
Clifford Chance
Overall, the outlook for cross border outbound M&A from Asia-Pacific strategic acquirers remains very positive, with 90% of respondents expecting an increase on the
previous year, or at least similar levels. The US, Eurozone and UK remain the most popular target jurisdictions for outbound M&A, with the US increasing to 87% from
71% in the prior year. The UK has also seen a notable increase in interest, rising to 47% from 36% in the prior year. In light of the drivers of outbound M&A highlighted
below, we are expecting even stronger outbound M&A in the next year, with Chinese and Japanese companies in particular likely to be strong participants as their
domestic market growth slows, they see more limited opportunity to expand in their domestic markets and they adopt a global strategy.
Asia Pacific outbound M&A
7 Insights into Asia Pacific M&A
US
87%
South America
26%
Africa
22%
Eurozone
63%
Canada
23%
14% Middle East
UK
47% CEE
16%
Top 3
dri
vers
of
Outb
ound M
&A
Asia companies adopting global strategy
Desire to find new markets
Depressed valuations in target
markets
Desire to secure know-
how/technology, brands
Improving
economies in
US/Europe
Desire to secure
supplies of
natural resource
73%
49%
46%
38%
23%
21%
Clifford Chance
Key drivers…
8 Insights into Asia Pacific M&A
Asian companies adopting global strategy The top driver for Asia-led M&A
Depressed valuations in target markets Attracting investors to target markets with the hope of taking advantage of attractive valuations
Desire to find new markets A top driver of Asia-led M&A and inbound M&A. In respect of the latter, 64% of respondents believe Western companies are likely to continue their focus on their emerging market strategy notwithstanding the greater economic uncertainty in those markets
Desire to secure know-how/technology, brands Are key drivers for TMT, CG&R and Industrial sectors
Improving economies in US/Europe Attracting Asian companies to target acquisitions in those markets and increasing the confidence of companies there to make acquisitions in Asia-Pacific
Strategic repositioning of financial institutions Disposals driven by increasing complexity and cost of regulatory compliance and focus on more profitable businesses, particularly by Western headquartered institutions. Regional companies interested in opportunities to grow outside their home markets.
Correction in natural resources With the fall in commodity prices, and a rebound not expected soon, 59% of respondents believe the market is attractive for opportunistic acquirers
Increased confidence of acquirers Asian companies continue to become more sophisticated in cross border M&A
Lack of opportunities in home markets Particularly relevant to low growth markets and where companies already have strong domestic positions
Successful acquisitions 65% of respondents state acquisitions they have involved in have been considered successful for the acquirer
Clifford Chance
...and challenges
9 Insights into Asia Pacific M&A
Concerns about local protectionism and antitrust Growing complexity in navigating anti-trust and other regulatory regimes and increasing enforcement action in major jurisdictions. 70% of respondents see
protectionism as one of the most significant concerns for buyers, up from 64% last year
Regional and global economic conditions Slow down in growth in Asia-Pacific, especially China, and the effect on the US and European economies as quantitative easing ends are seen as
significant risks
Sellers’ unrealistic price expectations In the past two years, seen as the biggest drag on M&A and potentially stalling M&A deals - still seen as one of the top three most significant challenges
this year
Cultural differences in process Comprehensive due diligence to ensure no post-acquisition surprises and good deal structures and legal agreements seen as key to successful M&A, but
can be resistance to these for various reasons from the seller. Advisers with local experience key to manage this
Insufficient comfort in respect of due diligence Poor transparency heightens risks. The need for comprehensive due diligence and a good acquisition team with local knowledge are identified as the two
of the most important factors when conducting M&A in the region
Lack of attractive targets Companies are holding on to quality assets
Bribery and corruption Global reach of bribery and corruption regimes necessitating increased scrutiny of investments and due diligence as well as issues with post-acquisition
integration
Post Merger Integration 60% of respondents see integration of acquisitions in Asia-Pacific as more difficult than anticipated. Post-merger integration is key to any successful
acquisition and can be a greater challenge in foreign markets where the business, cultural, legal and political issues are different to those in the acquirer's home markets
Clifford Chance
Antitrust and other regulatory hurdles
10 Insights into Asia Pacific M&A 10
Strategic considerations
Richard Blewett, Head of Anti-trust, China
Communication
Where possible, coordinate responses to overlapping requests, with
similar and consistent information submitted across jurisdictions.
Generally assume that regulators are communicating with each other.
Managing relationships with multiple regulators
Companies may need to balance between focusing on regulators in
"high-intervention" jurisdictions such as China, EU and US, while not
alienating regulators in other jurisdictions.
Timing
Timing is critical: prepare early, have a list of
"prioritized jurisdictions" (e.g., with pre-
notification and/or more data input), and have a
timing strategy and be disciplined on timing and
deadlines.
Antitrust laws have continued to expand and
develop across the Asia Pacific region.
Having flexed their muscles in the early years of China's antitrust regime, the
three Chinese antitrust agencies are going through periods of internal reform
and reflection ahead of an overhaul of the Anti-Monopoly Law next year. For
most M&A deals which are reviewable in China, the transformation has been
positive in terms of the timing and predictability of review periods – and
MOFCOM has seen a huge leap in the number of filings as a result.
However, as last year's decision to block the P3 shipping alliance shows,
MOFCOM remains able and willing to step in where it believes China's
interests are threatened by global deals.
Similarly, India has seen an increase in the number of merger filings
and has imposed a number of fines for gun-jumping, making it increasingly
important in deal-planning. Elsewhere in Asia, Hong Kong finally
introduced its Competition Ordinance in December 2015, whilst across
ASEAN, the Philippines, Laos and Thailand enacted new competition laws.
Many of the recent big deals have been in sectors where antitrust
enforcement has traditionally been high - technology, pharmaceuticals and
consumer goods. The proportion of notified deals in these sectors subject to
some form of antitrust intervention remains relatively high. In many cases,
buyers come into these deals with a pre-agreed remedy package in order to
pre-empt antitrust concerns. Crafting the right package of remedies is often
the key to managing the objections of antitrust agencies and the timing
expectations of other stakeholders.
Antitrust enforcement actions in the major jurisdictions are also increasing.
Most of the major jurisdictions saw a resumption of the trend towards ever
higher fines, reflecting increasingly aggressive enforcement by the antitrust
authorities. China's National Development and Reform Commission imposed
a record fine of nearly USD 1 billion on Qualcomm in early 2015. South
Korea saw its first criminal prosecution of a foreign firm for participation in an
international cartel. Indonesia's competition authority is seeking to raise its
status and obtain more independent powers to enable it to combat cartels.
“ More regulators and more rules make navigating
the global merger control map increasingly complex.
The recent spate of mega-mergers has helped keep
enforcement rates high, particularly in the
pharmaceutical and tech sectors.
”
Clifford Chance
“Economic Sanctions shouldn't prevent companies from operating in a given jurisdiction; but it does require comprehensive
diligence pre-acquisition and continuous monitoring post-acquisition.” Wendy Wysong, Partner, Litigation & Dispute Resolution
Focus on compliance and risk
management With increasingly aggressive enforcement and focus by regulators
around the world, and in particular, the US, UK and China on
corruption, due diligence in this area and steps to mitigate risks are
of increasing importance for buyers and sellers. Some key target
areas to focus on are:
11 Insights into Asia Pacific M&A
M&A in the face of heightened economic
sanctions Political and military uncertainty (e.g. Russia/Ukraine and Middle East)
including economic sanctions is seen as a significant drag on M&A. Whilst this
is a concern for companies looking at acquisitions, measures can be taken to
ensure compliance with sanctions laws and minimise risks against potential
penalties.
Post-acquisition Ongoing monitoring Pre-acquisition
Due diligence to
cover Target’s
operations with
sanctions targets or
in sanctioned
countries/sectors
If they exist, to
determine extent of
business contact
and whether
exemptions would
be available to
cover business
operations after
acquisition
Newly acquired
company to
implement any
necessary
changes to its
business (e.g. cut
ties with certain
customers,
ringfence US
persons from
certain customer
transactions, etc.)
Implement
sanctions
compliance
programmes
during integration
phase
Sanctions laws (US
in particular) change
continuously
Acquirer must
monitor these
changes
continuously if it
decides its Target
can continue to
interact with its pre-
acquisition
customers that raise
sanctions risks.
Buyer
Earlier, and more thorough due diligence on target's anti-corruption policies and compliance history (particularly if a "red flag“ sector or jurisdiction)
Consideration of transaction structure e.g. asset deal/share deal/ joint venture? (JVs may lead to responsibility for violations of a JV partner)
Additional robust representations, warranties and indemnities from sellers in relation to historical compliance
Obtaining anti-bribery certifications from key persons at target
Avoidance of transactions that lead to unmanageable liability risk
Planning ahead – detailed plans regarding anti-corruption practices and procedures that will be implemented post-completion
Seller/Target
Commencing and/or
refining internal policies to
ensure compliance with
anti-bribery legislation
before sale
Statements of commitment
from management
Risk assessment and
monitoring of compliance
Vetting prospective
employees and appropriate
disciplinary procedures
Education of employees
Diligence of business
relationships
Policies and procedures
that meet highest standards
Clifford Chance
Control deals and joint ventures/partnerships favoured
Full control acquisition of targets has traditionally been the most popular structure, and it is still the most preferred structure according to 39% of
respondents. Alternative deal structures also seen as viable options, with joint ventures with a strategic partner and partnerships with private equity and
other financial investors the most preferred structure according to 25% and 16% of respondents respectively.
Deal structures and pricing gap
12 Insights into Asia Pacific M&A
Joint ventures and alternative deal structures
Provide opportunity to share business, financial,
cultural and political risk – a particular feature in
emerging markets, and combine JV partners’
expertise
May enable foreign ownership restrictions and
antitrust considerations to be navigated
successfully
May add valuation gap
Often used as a stepping-stone to acquire 100%
Know your partner
Clear delineation of
roles and decision
making
Can be unstable
What happens next?
Extensive due diligence
required
Detailed contractual
framework required
Contractual framework
must address how
disputes to be dealt with
Critical to agree exit
mechanism at the outset
Bridging the pricing gap
60% of respondents believe sellers’ unrealistic price expectations is a drag on M&A. It was ranked as one of the biggest drags on M&A and alternative forms of structuring
can help to mitigate risk. The challenge of bridging the pricing gap can be addressed, at least in part, by the following:
Contingent or deferred consideration e.g. earn-out
Vendor retained stakes
Staggered sales
Purchaser clawbacks
Vendor financing
Warehousing
Clifford Chance
There was a slight reduction in expectations compared to last year that PE funds will be increasing or
maintaining similar levels of activity on the buy-side (89.5%) and sell-side (86%). 2015 has been a year of
two halves with a busy first half of the year and second half being quieter due to the significant equity
market volatility in the late summer and a more pessimistic growth story, in China in particular.
Private Equity in focus
Insights into Asia Pacific M&A
Auction processes become somewhat of a lottery – sourcing proprietary
transaction opportunities is a key focus of the Asian PE funds – for quality
assets at the right price, these remain few and far between.
Simon Cooke, Co-head of PE, Asia-Pacific
35%
51%
14%
PE sell-side activity
Increase Similar Decrease
51% 38.5%
10.5%
PE buy-side activity
Increase Similar Decrease
“ ”
A competitive market
place
Asia-Pacific is becoming an increasingly
competitive market in the PE space –
numerous PE funds have cash which they
need to spend and the quality assets at the
right valuations are few and far between.
GP casualties:
we are starting to see PE
houses fall by the wayside as
they struggle to raise new funds
and effectively drop out of the
buy-side market
The rise of the strategic:
corporates with strong balance
sheets have re-entered the
market in force. PE funds find it
difficult to compete when
strategics can demonstrate the
synergies on an acquisition –
Germany’s Metro winning the
auction for EQT’s Classic Fine
Foods being a good example
13
Clifford Chance
This is the ninth year in which Clifford Chance and FinanceAsia have collaborated on a regional M&A
survey. Over 200 respondents expressed their views in November 2015, with 69% at CEO, MD, CFO or
executive level. FinanceAsia was appointed to conduct this M&A trends study by engaging with leading
decision makers and M&A professionals using an online survey. The goal was to gauge perceptions on
the very latest market conditions and identify M&A trends in Asia Pacific.
About the survey
29%
18%
15%
7%
6%
5%
3%
3%
2%
2%
2%
1%
1%
1%
1%
1%
1%
2%
Hong Kong
Mainland China
Singapore
Southern Asia
North America
Malaysia
Indonesia
Taiwan
Australia
India
Japan
Eurozone
Europe other
Middle East
South Korea
Thailand
UK
Others
14
Respondents’ Profiles (%)
22%
18%
10%
9%
9%
7%
6%
5%
3%
1%
1%
9%
Banking
Asset management
Services
Alternative …
Legal/Advisory
Private equity
Industrial
Consumer
TMT
Energy and resources
-
Others
33%
16%
20%
14%
17%
MD/CEO/Partner
COO/CFO/Director
Company executive
Business development or M&A manager
Others
Clifford Chance
Global M&A Key Contacts
*Linda Widyati & Partners in association with Clifford Chance
15 Insights into Asia Pacific M&A
Asia Pacific
Roger Denny
T: +852 2826 3443
E: roger.denny
@cliffordchance.com
Australia
Lance Sacks
T: +61 28922 8005
E: lance.sacks
@cliffordchance.com
Latin America
Anthony Oldfield
T: +1 212 878 3407 /
+55 11 3019 6010
E: anthony.oldfield
@cliffordchance.com
Central and Eastern Europe
Alex Cook
T: +420 22 255 5212
E: alex.cook
@cliffordchance.com
Spain
Javier Garcia de Enterria
T: +34 91590 9466
E: javier.garciadeenterria
@cliffordchance.com
France
Laurent Schoenstein
T: +33 14405 5467
E: laurent.schoenstein
@cliffordchance.com
Global
Guy Norman
T: +44 20 7006 1950
E: guy.norman
@cliffordchance.com
Africa
Spencer Baylin
T: +44 20 7006 1519
E: spencer.baylin
@cliffordchance.com
Germany
Thomas Krecek
T: +49 697199 1524
E: thomas.krecek
@cliffordchance.com
Middle East
Mike Taylor
T: +971 4503 2638
E: mike.taylor
@cliffordchance.com
North America
David Brinton
T: +1 212 878 8276
E: david.brinton
@cliffordchance.com
Hong Kong
Andrew Whan
T: +852 2825 8903
E: andrew.whan
@cliffordchance.com
India
Neeraj Budhwani
T: 852 2826 2428
E: neeraj.budhwani
@cliffordchance.com
Japan
Tatsuhiko Kamiyama
T: +81 35561 6395
E: tatsuhiko.kamiyama
@cliffordchance.com
Singapore
Kathy Honeywood
T: +65 6661 2083
E: kathy.honeywood
@cliffordchance.com
Thailand
Andrew Matthews
T: +66 2401 8822
E: andrew.matthews
@cliffordchance.com
Indonesia*
Linda Widyati
T: +62 212988 8301
E: linda.widyati
@cliffordchance.com
China
Terence Foo
T: +86 10 6535 2299
E: terence.foo
@cliffordchance.com
United Kingdom
Mark Poulton
T: +44 20 7006 1434
E: mark.poulton
@cliffordchance.com
Korea
Hyun Kim
T: +82 2 6353 8118
E: hyun.kim
@cliffordchance.com
Netherlands
Hans Beerlage
T: +31 20711 9198
E: hans.beerlage
@cliffordchance.com
This publication does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice.
Clifford Chance, 10 Upper Bank Street, London, E14 5JJ
© Clifford Chance LLP 2016
* Linda Widyati & Partners in association with Clifford Chance www.cliffordchance.com