Participate, Profit & Celebrate:
Co-founder & Senior Managing Director
Business Development Asia
Co-founder & Senior Managing Director
Business Development Asia
Euan Rellie shared insights with Global M&A Network on the dominant themes driving M&A deal trends in the wider Asia Pacific regions, the emergence of Chinese buyers searching for deals in the US and Western European destinations, the challenges of conducting due diligence, as well as his views on what it takes to achieve success in winning regulatory approval in China. volatility.
Q.: In your observation, what are the dominant M&A themes in the wider Asia Pacific region for the year?
Mr. Rellie: The emergence of Chinese buyers, globally, is exciting. In industries from natural resources, to automotive, and industrial manufacturing generally, ambitious Chinese groups are arriving, stuttering but determined, in auction processes around the world.
Q.: How will the current level of volatility in the stock markets impact the deal activity in the region?
Mr. Rellie: Volatility in the West gives Asian bidders an advantage. Capital is still plentiful in Asia, and the Asian economies, though also slowing, are still enjoying meaningful GDP growth. Each economic slowdown seems to tip the balance of global economic power a little further towards Asia.
Q.: What are the current cross-border deal destinations by Asian buyers?
Mr. Rellie: Japanese and Chinese automotive groups are buying in Western Europe and the US. In April 2011, Beijing Hainachuan Automotive Parts acquired 100% Inalfa Roof Systems of the Netherlands. Chinese energy companies have been aggressive in Australia and Canada. CNOOC is paying US $2.1 billion and also assuming US$2bn in debt, to buy Toronto-traded oil sands developer Opti Canada. Sinopec bought the oil sands assets of ConocoPhillips Corp. for US$4.65bn.
Q.: What is the state of acquisition financing for cross-border M&A transactions in Asia?
Mr. Rellie: Asia is generally awash with funding, both equity and debt. Both corporate and financial sponsors, from Beijing to Hong Kong to Mumbai and Tokyo, have access to cheap capital. There is also plentiful private equity money chasing deals in the region, and willing to back Asian companies looking outwards to global deals.
Q.: What are the latest trends in private equity deals? Given the number of"Asia Funds", what is the level of competition and how is the competition impacting valuations?
Mr. Rellie: Valuations remain high in both China and India, even though those valuations should come back towards earth a little, given the tough IPO outlook. Sellers can see that it's harder to go public, and are therefore willing to talk again to financial sponsors and corporate buyers. There is, however, still today often a disparity in pricing expectations between buyers and sellers.
Q.: What sectors in the region are expected to be top performers in terms of volume for the year, and why?
Mr. Rellie: Lots of industrial deals, always, and financial services and resources, but also clearly an increasing amount of healthcare, consumer and luxury goods activity.
Q.: What are the latest trends in regards to in-bound deals in China? What are the risks for managing in-bound PRC transactions?
Mr. Rellie: China is welcoming foreign investment, but also demanding technology transfer to protect its own burgeoning companies. We still see a wall of Western companies â€“ and also Japanese and Korean â€“ trying to invest in China. Generally they are well received. Big LBOs will face some protectionist resistance. Due diligence is hard in China, as petty corruption remains endemic among sales forces, and accounting systems and controls are still often poor. We have seen acquirers struggle when Chinese local Government bodies are putting pressure on industrial companies to move their manufacturing plants away from city centers. They key to winning approvals is to use a good investment banking advisor, a good lawyer, and seek informal guidance from the various authorities early in the process.
Q.: How is increased level of competition in the intra-Asia Pacific regions impacting valuations?
Mr. Rellie: The perception of aggressive Asian bidders â€“although for now there's still more perception than reality - is certainly brining additional competitive tension to Western auction processes. We have repeatedly been able to bring Asian buyer interest which has improved outcomes for Western sellers, even when they've usually ended up closing the sale to another US PE firm.
Q.: What is the most challenging yet satisfying aspect of advising on a sell side transaction in the Asia Pacific region?
Mr. Rellie: We helped Henkel and Cookson sell Asian business which were not performing well â€“ never easy - but we achieved good prices, from happy acquirers who will make more of those businesses going forward. We helped Pfizer to achieve a successful, clean and well-priced sale, under significant pressure as part of a forced anti-trust divestiture. Regulations are less clear in Asia, and Asian counterparties still often unsophisticated, but all that makes my job more fun.
Q.: Hong Kong Stock Exchange has attracted a slew of high-profile IPO listings this year?
Mr. Rellie: Hong Kong remains the institutional investing capital of Asia. It still represents the window for foreign banks and PE firms into China. It's still where most of the big fund managers sit, and Hong Kong's regulations are world class. There won't be many IPOs there or anywhere in the coming months, but it the medium term, Hong Kong will be perhaps the most important IPO market in the world.
Q.: As a veteran M&A advisor in Asia, how has the deal making community evolved since the financial markets crisis?
Mr. Rellie: The trends are strongly positive. There are more deals getting done, with increasing complexity and sophistication. But so far, we've only scratched the surface.
Q.: What sets BDA's Asia Pacific M&A team apart?
Mr. Rellie: BDA is the only pan-Asian investment banking boutique. We have the strongest team of any firm in Shanghai, with 20 bankers, and strong offices in Tokyo, Seoul, Hong Kong and Mumbai. We have a good, small, targeted presence in Bahrain. Perhaps most importantly, though, the top eight professionals at BDA have an average tenure of ten years with our firm. That stability, and consistent management, is unheard of among investment banks in the region â€“ or for that matter, globally.
Q.: In closing, required, what book are you currently reading?
Mr. Rellie: I've finally got round to reading One Day the novel by David Nicholls, published in 2009, which has just been made into a movie. Each chapter covers the lives of two protagonists on 15 July, St. Swithin's Day, for twenty years, from 1988 to 2008. Every single page is reminding me of my own life. I haven't enjoyed a novel so much for ages.
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