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Deal activity in Asia falls to its slowest pace in five years amid US-China trade war, global slowdown, Dealogic says

Chad Bray chadwick.bray@scmp.com

Mergers and acquisitions in Asia occurred at their slowest pace in five years in the first nine months of 2019 against the backdrop of a global economic slowdown and the ongoing US-China trade war, according to Dealogic.

At the same time, Chinese companies saw a record high for sales of overseas assets at US$40.2 billion in the January-September period and a third consecutive year of declining outbound merger activity, the financial data provider said. Beijing began a campaign to cut debt levels in 2016 that has seen Chinese companies, such as Anbang Insurance Group, Dalian Wanda Group and HNA Group, forced to sell off assets after a buying spree.

"Notably, among all the target nations of Chinese divestments, the US continues to be the largest transaction volume, reaching US$26.3 billion, a little more than four times the volume of the same period in 2018," Dealogic said.

Globally, merger and acquisition volume declined 5.6 per cent to US$3.05 trillion, compared with US$3.23 trillion in the same period of 2018, according to Dealogic.

The global decline comes as a trade war between the US and China has raged for more than a year and growth is slowing globally. The trade war, which has seen both countries put tariffs on hundreds of billions of dollars of goods, has cut into global trade and weighed on business sentiment, with companies delaying future investment.

"Global trade tensions, initiated by President Trump and the US, have been the biggest source of uncertainty for markets in the past year," said Esty Dwek, head of global market strategy at Natixis Investment Managers. "And while we have seen many reversals, our base case has not changed much. We continue to believe that a sweeping trade agreement is unlikely before 2020."

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The US drove deal activity globally, reaching a record high of US$1.67 trillion, Dealogic said, but the appetite for cross-border acquisitions involving American companies fell to its lowest levels since 2010.

Asia-Pacific saw transactions worth US$599.6 billion in the first nine months of the year, the slowest period since 2014. That compared with US$716.9 billion of deals a year earlier and US$578.7 billion worth of transactions in the same period of 2014.

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"Most US-targeted mega-deal transactions were domestic [25 out of 27], partly thanks to the increase in business consolidation reflected in two sectors: health care and technology," Dealogic said.

Hostile takeover attempts fell to their lowest level since 2012, with 33 offers worth US$86.7 billion. The completion rate of hostile offers also dropped significantly, with 69.6 per cent rejected or the offer withdrawn.

Hong Kong Exchanges and Clearing made a surprise US$36.6 billion offer for the London Stock Exchange Group in September, but the offer was rejected by the London bourse. It is the biggest hostile offer of the year, according to Dealogic.

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"The steep failure rate for hostile offers is the highest since 2013," Dealogic said. "Soaring failure rates as well as political uncertainties globally could be causing confidence in boardrooms to fall, with companies more reluctant to attempt hostile takeovers."

Against the backdrop of declining merger volumes in Asia, Goldman Sachs has reshuffled the leadership of its merger and acquisition business in Asia-Pacific, excluding Japan.

Raghav Maliah and Jung Ming were named co-heads of the division, replacing John Kim, who is moving to The Carlyle Group to head its Asia buyout team beginning in March, according to an internal memorandum on Wednesday.

Maliah is global vice-chairman of the investment banking division. Maliah and Min are co-heads of the technology, media and telecom group in Asia-Pacific, excluding Japan.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.