Mayooran Elalingam from Deutsche Bank observes a large number of deals
New buyers such as SPACs are pouring into the takeover market
Mayooran Elalingam, Head of Investment Banking Coverage and Advisory for Deutsche Bank in the Asia-Pacific region, spoke to the South China Morning Post (SCMP) about M&A activities in China. It is said that China has now become one of the most active markets for mergers and acquisitions.
Probably “best year in a long time” in China
As the senior investment banker explained, M&A activity picked up significantly earlier this year. At least as far as the number of deals is concerned, because the transaction volumes were lower, reports SCMP. “Even if the rest of the year is much more normal, we should have a very, very good year in M&A, probably the best in a long time,” Elalingam is quoted as saying.
So far, there have been 825 deals in China (as of March 5, 2021), which are said to have combined a total of 75.7 billion US dollars in value. In addition, there have already been 51 announcements of foreign transactions, which could have a total value of 5.8 billion.
High levels of cash favor the increasing number of M&A deals
As part of a study on the global development of takeovers over the past two years, the accounting firm PwC came to the conclusion that numerous takeovers and mergers could be pending in 2021. Because some candidates are prepared for precisely such measures in the current environment: “Companies that anticipate the economic effects of the global coronavirus pandemic have a cumulative war chest of more than 7.6 trillion US dollars in cash and tradable securities – and interest rates remain at record lows, “PwC wrote in its report.
Mayooran Elalingam from Deutsche Bank apparently came to the same assumption. He told SCMP that a number of companies are looking for ways to use their cash. These include in particular new buyers who had not previously existed. “There are new buyers in the region. There are the SPAC buyers. There are private equity, infrastructure and core-plus funds, but also insurance companies and investment funds, some of which can achieve single-digit returns,” quotes him Page. In parallel, other companies would sell their assets to reduce their debt. After a quiet pandemic year, the market is gaining momentum as activities resume.
Factors and new trends in the takeover market
In addition to the sheer number of acquisitions and mergers, there are other developments in the M&A market, the report said. ESG aspects have also become more important in transactions. The reason for this is primarily that China and other governments in the region have declared that they want to be emission-neutral by 2060, explained Elalingam. “ESG has now become a very big issue in M&A. It’s not just about taking out a green bond,” SCMP retorts.
And with the relationship between China and the US still under tension, Chinese buyers tend to focus on regional destinations rather than the US when doing overseas transactions. This also included multinational companies selling their businesses because they were leaving the region. According to SCMP, the senior Deutsche Bank employee said: “In general, we are seeing more outbound than inbound flows for our multinational customers at the moment.”
SPACs play an important role in China
Elalingam attaches great importance to Special Purpose Acquisition Companies, as their dissemination should also play an important role in the region around China. In January and February 2021 alone, such shell companies are said to have raised 60 billion US dollars for public exchanges, SCMP cites data from Refinitiv. The trend this year can be clearly felt, so that the current pace of fundraising is expected to be the highest in two decades.
However, such exchanges are not yet possible in Asia – there may be changes to the exchanges in Hong Kong, Singapore and Indonesia that would make such SPACs accessible.
“Two things are important for a successful SPAC market in APAC – investors and the regulatory framework,” Elalingam told SCMP, speaking of the “great appetite of investors in this region to support SPACs.” In order to satisfy this hunger, however, the regulatory lines are of great importance, “since it is a complex product that is probably suitable for more discerning investors,” concludes the Asia-Pacific investment expert.
Finanzen.net editorial team
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