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Asia's dealmakers are predicting a solid year for the M&A industry, according to the results of this year's Clifford Chance/FinanceAsia Asian M&A Survey.

And while China remains the key area for both inbound and outbound activity, the survey showed a firming of intentions in south and south east Asia, while troubles at home are expected to dampen the spirits of European and American acquirers.

Natural resources will remain top of the shopping list for acquirers, but Asian companies are showing increasing interest in making use of the changes in the global economy to secure new technology and expertise and to globalise their businesses.

Deal sizes remain consistent with survey findings over the last two years, with the majority of transactions expected to close in the US$100 million to US$1 billion range.

Quietly confident

This year's survey of Asian dealmakers predicts a remarkably positive outlook for deal activity in the coming 12 to 18 months, with particularly bullish prospects for Asia outbound and intra-Asia M&A.

Overall, 76 per cent believe that cross-border outbound M&A from Asia-Pacific acquirers will increase during the period, up from 67 per cent in 2009 and 43 per cent in 2008.

Questions on intra-Asia M&A produced similar results; 73 per cent predict an increase in activity, compared to 67 per cent in 2009 and just 37 per cent in 2008.

Inbound acquisitions from non-Asia-Pacific acquirers lagged behind but were still solid - 50 per cent of respondents predict an increase this year, up from 43 per cent in 2009 and double the numbers recorded in 2008.

The China syndrome

China remains the big story for M&A dealmakers working in Asia. Even with depressed home markets, 44 per cent of respondents expect levels of M&A activity in China from non-Asia acquirers to increase, while 42 per cent expect it to stay at similar levels.

On outbound activity by Chinese acquirers, however, over three-quarters of respondents expect an increase on last year's activity levels. "We are well past any question as to whether or not China is significant as a source of acquirers," said Roger Denny, Head of M&A, Asia at Clifford Chance. "Chinese companies are definitely serious M&A players, even though we are still in a relatively early phase of such activity."

Chinese acquirers will also form by far the largest and most active group – 62 per cent believe that China will have the most acquirers, followed by the US at 14 per cent and India at 6 per cent.

When asked specifically about Chinese outbound investment, south east Asia was the largest target followed by Africa, Australia/New Zealand, North America, South America and western Europe.

Interestingly, China was also named as the most popular target for all those making acquisitions – first choice for 48 per cent of respondents, followed by Australia/New Zealand at 14 per cent, India at 13 per cent and Indonesia at 10 per cent.

Plenty of opportunities, but caution remains

When quizzed on market prospects for the 18 months ahead, respondents gave surprisingly contradictory responses, perhaps indicating that the exact roadmap for acquisition activity, while positive overall, remains a little unclear..

For instance, over two-thirds of respondents believe there will be good opportunities for Asian companies to acquire businesses in Europe and the US – but 66 per cent also believe that depressed economic conditions will make Asian buyers wary of acquisitions in those regions.

And in another response. 60 per cent agree that Asian acquirers will concentrate on emerging markets rather than mature markets.

"Asian companies are interested in opportunities but aware of the risks," said Roger. "They are comfortable with the growth rates that emerging markets offer and, as a result, may focus their efforts on opportunities within Asia."

In similarly contradictory results, 77 per cent believe that protectionism is one of the most significant concerns for buyers, while 60 per cent also believe that Asian acquirers would be more welcome over the next 18 months.

Over three-quarters of respondents believe the power will lie with the buyer in M&A deals over the next year to 18 months.  There was a big jump in the level of concern about protectionism, even over the prior year, where 56% expressed such concern.

"The economic situation in the West has heightened protectionist concerns" said Roger "In our view, as long as the acquisition process is well managed, outside the genuinely sensitive area of national security, these issues are usually manageable. The most important thing is to have a good strategy to address the issues that are likely to be raised by politicians and other stakeholders at an early stage." 

When asked what the most important factors were for successful M&A deals, respondents cited equally:

• due diligence
• regulatory hurdles
• managing stakeholder expectations
• the quality of the acquisition team
• a good deal structure..

"Assured funding" scored the lowest number of votes reflecting, perhaps, renewed confidence in financing since last year's survey.

How the survey was conducted

Clifford Chance and FinanceAsia surveyed 250 professionals in August on their views on M&A activity for the next 12 to 18 months.

Half of our respondents were employed in the financial services industry. The majority of our respondents had a direct say on M&A at their firms with around 41% of our respondents in key decision-making roles (managing directors, chief executive/financial officers, partners, etc).

43 per cent of our respondents were based in Greater China, while 31 per cent were based in south east Asia and India.

Independent research company Ipsos carried out the research on behalf of Clifford Chance and FinanceAsia.

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