Coronavirus remains a towering obstacle, and geopolitical tensions between the US and China have made some transactions harder to execute, if not impossible. Still, dealmakers are hardly sitting idle.
“We are seeing a healthy amount of deal activity within Asia Pacific across sectors less affected by the pandemic, particularly in technology,” said Jung Min, co-head of Asia ex-Japan mergers and acquisitions at Goldman Sachs Group Inc. based in Hong Kong. “We’re also seeing Chinese companies becoming a lot savvier about which deals can get done internationally.”
In tech, Japan’s SoftBank Group Corp. announced the sale of its chip division Arm Ltd. to Nvidia Corp. for as much as US$40 billion. Indian billionaire Mukesh Ambani has turned heads by attracting more than US$20 billion of investment in Jio Platforms Ltd., the wireless arm of his Reliance Industries Ltd. empire, and more recently to its Reliance Retail Ventures Ltd. unit. E-commerce, one of the beneficiaries of coronavirus-driven lockdowns, is at the centre of Ambani’s vision.
Food retail has also proved resilient. Seven & i Holdings Co.’s US$21 billion purchase of Marathon Petroleum Corp.’s Speedway gas stations, announced in August, gave the company a commanding lead in the US’s convenience store sector. The deal followed the US$5.4 billion takeover of Japanese convenience store operator FamilyMart Co. by Itochu Corp. via a successful tender offer made in July.
China Retreat
Even though China’s economy has recovered more quickly than others from the impact of the Covid-19 crisis, Chinese dealmaking has turned inward. Several countries have tightened scrutiny of inbound investment, and Chinese firms listed in the US are feeling the strain from disputes between Beijing and Washington. While these factors have helped drive a wave of take-private transactions, headline-grabbing cross-border M&A has for the most part given way to more pedestrian corporate deals.
After the Arm deal, the biggest transactions on this year’s Asia-Pacific league table are linked to a reorganization of China’s pipelines. PetroChina Co. and Sinopec, the country’s biggest oil and gas companies, inked deals worth US$56 billion to sell their pipeline networks to a new national carrier known as China Oil & Gas Pipeline Network Corp.
Such restructuring transactions are usually labour intensive and fees tend to be low, according to Joe Gallagher, head of APAC M&A at Credit Suisse Group AG based in Hong Kong.
Global deals in the past three months have bounced back from a lacklustre second quarter, with volumes more than doubling. A broader and deeper revival of dealmaking may depend not only on M&A-friendly policy, but on dealmakers themselves.
“Until people are able to travel again, it’s hard to imagine a boom in cross border M&A,” Gallagher said. “In the current environment it’s more challenging to get deals done, unless they involve a local buyer and seller.”
Chinese companies are still keen on outbound M&A, particularly related to the Belt and Road Initiative, Gallagher said. In August, China Three Gorges Corp. agreed to buy 13 Spanish solar park assets owned by X-Elio Energy SL, in a deal that could become one of the few Chinese acquisitions in Europe this year. The state-owned power company is also exploring selling a stake worth as much as US$4 billion in its overseas asset portfolio, people familiar with the matter have said.
“As the pandemic related disruption stabilizes, and market volatility recedes, company boards in China and across the region will become increasingly confident in pursuing larger transactions,” said Tom Barsha, co-head of M&A in APAC at Bank of America Corp. based in Hong Kong. “Despite the macro challenges, the appetite for M&A, both regional and cross border, is steadily picking up.”
