Technical, cross-border actions ought to result in M&A in Asia within the subsequent 12 months By Reuters

© Reuters. People cross a street in front of the CBD skyline in Beijing during morning rush hour

By Kane Wu

HONG KONG (Reuters) – Coronavirus-fueled tech sector growth will help fuel M&A activity in Asia Pacific over the next year, according to bankers and lawyers. The potential easing of Sino-US tensions should revive Chinese foreign investment.

Transactions with Asia Pacific companies totaled $ 1.2 trillion in 2020, up 12% from 2019. Seven of the ten largest deals of the year were announced in the third quarter, totaling 40 % of the year’s transactions by value accounted for.

High tech and telecommunications companies rose to 23% of transaction value from 14% a year ago, while retail and consumer goods and service companies also saw growth.

“COVID has accelerated digitization, e-commerce and fintech dramatically,” said Jung Min, co-head of mergers and acquisitions (M&A) at Goldman Sachs (NYSE 🙂 in Asia ex Japan.

“Companies that have benefited from this are suddenly much bigger and more financial, which creates significantly greater potential for strategic investment,” he said. “Disruptions, changes and transformations in the industry continue and drive the larger transactions forward.”

In the latest move of this kind, Qatari telecommunications company Ooredoo and Hong Kong conglomerate CK Hutchison Holdings are considering a contract to merge their units in Indonesia, the fourth largest country in the world.

Samson Lo, head of Asia M&A at UBS, said the outlook for China outbound deals was positive despite ongoing regulatory setbacks from many countries. “There is still an appetite for high quality assets in Europe,” he said.

In a report released earlier this month, law firm Allen & Overy pointed to the potential return of Chinese healthcare investors to the U.S. market for the first time in many months to ease trade tensions.

The conflict between Washington and Beijing last year under outgoing President Donald Trump has hampered business. Investors say the incoming Biden government may not mean an immediate thawing of ties, but it will likely offer a more predictable policy approach.

Dealmakers also anticipate a steady pipeline of cross-border deals that include strategic investments by Asian companies as well as the divestments of multinational companies in the region.

“We assume that cross-border activities will play a prominent role, although it is unlikely that China will come from outside, as in previous years,” said Richard Wong. Morgan Stanley (NYSE 🙂 is Head of M&A in Asia Pacific. “We expect Asian sellers of assets from overseas … or highly selective strategic acquisitions overseas.”

China and Japan led Asian M&A growth in 2020, up from a 5.5% global decline. China, the world’s second largest economy, bounced back strongly from the earliest coronavirus outbreak, with deals increasing by 28% from 2019.

Japan contributed half of the region’s mega-deals worth $ 5 billion or more, including the takeover bid from Nippon Telegraph and Telephone (OTC 🙂 Corp. for NTT Docomo (OTC 🙂 for USD 40 billion.

Private equity-backed transactions in the region hit a record high of $ 129 billion, up 51% year over year.

Despite the deal bonanza, M&A fees fell to a five-year low of $ 4.2 billion as fewer deals were closed this year compared to 2019, Refinitiv data showed.

The dealmakers have also indicated that China’s recent antitrust crackdowns against its tech companies could deter future mergers and acquisitions.

Morgan Stanley topped the region’s rankings for announced M&A deals in 2020, followed by Goldman Sachs and CICC.

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