March 29, 2019 / 6:21 AM / 5 months ago

Multinationals expected to drive Asia M&A after slow start to year

HONG KONG (Reuters) - Dealmaking in Asia has had its slowest start to the year since 2014, even as bankers continue to look ahead to a series of expected strategic asset sales and spin-offs from big multinationals.

Mergers and acquisitions (M&A) involving Asia Pacific companies slid 39 percent in the first quarter year-on-year to $186 billion, the worst start to a year since 2014, according to Refinitiv data.

Bankers attributed much of the slowdown to the market turmoil in the second half of last year - particularly the fourth quarter - which slowed or even stopped work on many deals as executives waited to see whether sentiment would improve.

Dealmaking is however expected to pick up in the coming months as a strong start to the year for markets has revived animal spirits. The S&P 500 has risen 12 percent and China’s blue-chip CSI 300 is up more than 20 percent.

Deals known publicly to be well underway will add at least $10 billion (£7.7 billion) to the total in the coming weeks, according to Reuters calculations and banker estimates.

German wholesaler Metro AG is expecting first-round bids for a majority stake in its China operations by the second week of April and has already attracted interest.

In Australia, Campbell Soup is due to announce the winner of its biscuits business which includes Arnott’s - maker of Tim Tams - and which could fetch over $3 billion, according to sources familiar with the deal.

“More multinationals are evaluating their presence in Asia, which is leading to further investments but also some divestitures - or partial divestitures including aligning with a local partner to try to best position the business for the future,” said Kerwin Clayton, JPMorgan’s co-head of M&A for Asia Pacific.

While some global companies are seeking a greater stake in their Asian interests, including the carmakers and banks seeking to increase investment in China, other companies are expected to reduce exposure as geopolitical uncertainties remain high and China and the United States remain locked in trade talks.

Just last week, U.S.-based Murphy Oil Corp announced its exit in Malaysia by selling its assets there to Thailand’s PTTEP for $2.13 billion.

Apart from multinationals, private-sector company owners are also expected to sell more assets, according to bankers.

“Certain family-owned businesses, especially in South Korea and Taiwan, will explore sales as the ownership goes through generational change,” said John Kim, head of M&A for Asia ex-Japan at Goldman Sachs.

Graphic: Asia M&A sinks to five-year low in Q1 (tmsnrt.rs/2V4DPKA)

PRIVATE EQUITY FOCUS

Many sellers are specifically targeting private equity (PE) firms as potential buyers since the industry is sitting on record levels of “dry powder” - uninvested capital - after a fundraising bonanza.

More than two dozen bids, mostly from private equity firms, went in for the first-round auction of Asian hospital business Columbia Pacific Management, two people close to the situation have told Reuters.

“There is definitely momentum for PE firms to jump on the most attractive assets. Sellers now target a wide group of PE to make the process more competitive,” said a portfolio manager at a regional private equity fund, who declined to be named as he is not authorised to speak to the media.

Private equity groups are expected to be interested in joining consortiums bidding for the potential sale of NXC, the 48 percent shareholder of South Korean gaming company Nexon Co - potentially the world’s largest acquisition in the gaming industry, according to Refinitv data.

JPMorgan topped the region’s league table for announced M&A deals in the first quarter, followed by Morgan Stanley and Chinese investment bank Citic Securities.

Reporting by Kane Wu in Hong Kong; additional reporting by Anshuman Daga in Singapore; editing by Stephen Coates

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