What slowdown? JP Morgan says Asian companies like Tata and Nikkei will drive global M&A boom in the quest for long-term growth
The good times look here to stay for the global M&A market, as 88 per cent of Asian companies say mergers and acquisitions are vital to their growth strategy, according to a market report from JP Morgan.
Over the last 12 months, deal volumes in the Asia Pacific region have grown 61 per cent $1.05 trillion, according to Dealogic data used in the report, compared with the 40 per cent global growth rate, and have caught up with deal volume in Europe, the Middle East and Africa.
Asian companies have replaced Western ones as the drivers of international M&A, as they adapt to changing demographics and consumption patterns, and look to acquire skills from the West. The consumer, financial and technology, media and telecoms (TMT) industries are set to be some of the most active markets.
Most importantly, JP Morgan's global co-head of M&A Hernan Cristerna, told Morning Wire: “Asian corporates think long-term. [Meaning] M&A will be an important part of the global growth agenda for years to come,” adding:
They measure the success of a transaction in years not quarters. [They're not] concerned with market reaction the next day. Long term thinking is consistent with returns that can be surprisingly low relative to western companies, and some companies say they don't use hurdle [return] rates at all. They're in it for the long haul, and it's not a fickle trend.
Japanese companies are among the most confident in the region, although, despite the recent slowdown Chinese companies are not far behind.
Japanese companies especially are looking within Asia, as well as to the west, as they try to “diversify their regional exposure as the economy there is not growing. They’re looking to other Asian markets, which have the greatest growth dynamics," Cristerna said.
The UK will also reap a healthy share of the benefits, as one of the most attractive destinations for the region’s buyers, along with the US, Germany and France. Typically, Asian acquirers pay higher transaction premiums than non-Asian buyers.
Nikkei’s acquisition of the Financial Times, and Mitsui Sumitomo’s £3.5bn take-over of insurer Amlin are just two of the recent demonstrations of Japanese spending power. Tata's takeover of Jaguar Landrover is another prime example of the Asian strategy of looking to the future and adding value with new technologies, according to Cristerna.
He also pointed to Hony Capital’s £900m takeover over of Pizza Express last year, and Fosun’s purchase of Club Med as deals to take advantage of changing consumer trends and growing affluence in China.