SINGAPORE - Acquisition finance in Asia is bidding its time as external headwinds slow deal-making with companies and sponsors waiting out the volatility. However, a more difficult operating environment could present acquisition opportunities.
Buyers with strong balance sheets and private equity (PE) firms will be looking to put their money to work in the next three years as companies look to restructure and valuations start to cool off.
And even though China outbound finance may have slowed considerably, especially into the US market due to geopolitical considerations, Chinese buyers remain upbeat.
In the acquisition market, there is some hesitation in doing large deals with the high level of trade tensions, says Jacqueline Chan, a partner at Milbank, speaking during a panel discussion at the 14 Asian Bond Markets Summit in Singapore organized by The Asset.
However, she adds that private equity sponsors are more active in the mergers and acquisition space with logistics deals being done in Vietnam and Philippines, and industrial and power deals are in the pipeline.
Kelvin Lim, executive director of syndicated finance and institutional banking at DBS, notes that outbound and inbound Chinese M&A deals have decreased, but feels that with fewer Chinese buyers, private equity firms are filling the void.
Matthew Liaw, CTBC Bank’s EVP & head of global structured finance division, points out that manufacturers and supply chains are moving to nearby markets, and there are opportunities in the medical equipment and agricultural industries in Taiwan.
“Strategic investors can always use their corporate balance sheet to fund the deal, but PEs [private equity firms] should always focus on target fundamentals,” Lim says, adding that “banks do need time to adapt to different market frameworks.”
“Local lenders are crucial for local currency transactions,” Liam points out. “As a bank, if the deal structure is more complex, we need to look more into the details.”
“There is a lot of dry powder from the private equities companies,” Lim says. “We are seeing less activity from strategic investors and, therefore, PEs are coming out.”
“In many markets, we are in a very active deal-making cycle,” Chan shares. “In the frontier markets, there may be fewer large deals, but still many opportunities.”
In developed markets like Hong Kong and Singapore, ticket sizes are getting smaller, Lim notes, while Liaw points out that in Taiwan, some companies facing succession issues and some companies are looking for outbound opportunities and private equity firms to assist them.
