The M&A Wave Hasn't Ended In Asia

If the merger and acquisition boom is over, someone forgot to tell deal makers in Asia.

Certainly there has been a slowdown in global dealmaking over the past two months that Asia hasn't fully escaped. In September, the total value of mergers and acquisitions announced fell just below $200 billion, according to Thomson Financial, a drop of nearly 57% from the average for the first seven months of the year. But when it comes to M&A, global figures are dominated by trends in the U.S. and Europe - where both the number and size of deals remain far larger than they are in the rest of the world. So when deals targeting Asian companies (including Japan) are isolated, the drop is far less dramatic. There were about $37 billion worth of acquisitions of Asian companies announced in September. That's down from a monthly average of about $50 billion in the first seven months of the year, but September may prove to be a short-term dip. Asian firms are flush with cash and backed by a banking sector that seems to have escaped the global credit crisis without any major damage. The sector played only a minor role in underwriting bridge loans for the many leveraged buyouts that are starting to look shaky. Only one week into October, there have been more than $14 billion in deals announced in Asia. That of course is skewed somewhat by a single $4.6 billion offer by Citigroup for the piece of Nikko Cordial Corp. (8603.TO) it doesn't already own. Still, it is good news for Asian stockholders, and if a recent spate of bids for foreign companies by Asian buyers is the start of a new M&A trend, it could give investors in the rest of the world something to cheer about as well. There is one caveat. Even if Asian firms keep on buying and turn towards the U.S. and Europe in search of targets, the deals are likely to remain small. The average size of a deal for a firm based in Asia, so far in 2007, is about $50 million, according to Thomson Financial data. That compares with about $150 million for deals in the U.S. Plus, clear-thinking Asian buyers are unlikely to make outsize bids for U.S. and European firms for fear of resurrecting the protectionism experienced by CNOOC and Dubai Ports World.

Some Sectors To Perform Better

Some sectors look like set to fare better than others. For example, with shares of Australian resources companies rising to new heights, these companies have been behind a spurt of recent deals. Australian resources companies were buyers in four of 18 deals announced in the last two weeks of September, according to a count by Credit Suisse. One of those four was the $1.5 billion acquisition of Chicago recycling company Metal Management Inc. (MM) by Sims Group Ltd. (SGM.AU). Another of the eighteen deals was an offer from Australia's Macquarie Bank Ltd. (MBL.AU) for privately held Canadian investment bank Orion Financial. In fact, there have been several deals over the past few months involving Asian buyers and foreign targets. Among the highest profile of these recently are Doosan Infracore Co.'s (042670.SE) $4.9 billion deal for Ingersoll Rand Co.'s Bobcat business, Acer Inc.'s (2353.TW) $710 million bid for Gateway Inc. (GTW), and even the recent $2.2. billion bid for 3Com Corp. by private equity firm Bain Capital and China's Huawei Technologies Co. It's a trend that local bankers think will continue. "I expect to see more of these types of transactions in the coming months," said Mark Renton, head of investment banking Asia Pacific for Citigroup. "Asian companies increasingly have the confidence and management expertise to pursue their global ambitions via overseas acquisitions," he said.