Clifford Chance Finance Asia survey 2013

Clifford Chance

Insights into Asia Pacific M&A FinanceAsia and Clifford Chance M&A Survey

cliffordchance output.indd 1 13年12月10日下午12:41

Clifford Chance

Global and Asian M&A activity has steadily picked up, reflecting businesses' tentative increased confidence to invest through M&A. Companies from China, Japan, Singapore and Thailand continue to be active investors both intra-Asia and in relation to Asian outbound M&A. Within the region, transactions such as CP All's US$6.2bn acquisition of Siam Makro and MUFJ's US$5.7bn acquisition of Bank of Ayudhya have hit the headlines. Asian companies have also made big ticket acquisitions in the US, Europe and Africa, including Softbank's US$21.6bn acquisition of Sprint, Lixil and DBJ's US$3.6bn purchase of Germany's Grohe, Shuanghui's US$6.95bn acquisition of Smithfield Foods, and Pavilion Energy’s US$1.25bn LNG acquisition from Ophir Energy in Tanzania.

We are seeing an increased level of confidence amongst companies looking to pursue strategic acquisitions. Positive factors supporting this include the expectation that the US economy is set for a sustainable recovery, a pent up interest in acquisitions and disposals and companies with plenty of cash and access to relatively cheap debt. When combined with Asian companies adopting regional and global strategies, a desire to find new markets and secure knowhow, technology and brands, we have the ingredients for a more active Asia Pacific M&A market in 2014.

As the drags on M&A move away from economic uncertainty and lack of boardroom confidence, issues such as protectionism, antitrust clearances and political pressures are increasingly seen as the factors challenging the successful completion of M&A. The recent high-profile rejection by Australia’s Foreign Investment Review Board of Archer Daniels Midland's US$3.1bn proposed takeover of Graincorp, highlights the real risk of a deal unraveling due to factors beyond the buyers and sellers’ control. The good news is that there are steps that can often be taken to mitigate these risks, which we highlight later on in this report.

Whilst the focus on achieving deal certainty and an assessment of post-acquisition integration issues may result in slightly longer timetables, taking into account the positive drivers for M&A, I expect a continued increase in M&A in the next year.

I look forward to hearing from you if we can support you in your assessment of M&A opportunities or if there are any areas on which you would like us to share our insights.

Roger Denny Head of M&A Asia Pacific

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M&A: Views from Asia Pacific

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Clifford Chance 3 Source: FinanceAsia and Clifford Chance M&A Survey. Figures have been rounded.

Expected activity levels

Key findings Consumer, Retail and Leisure hottest M&A sector; China and South East Asia hottest target markets Desire to find new markets, depressed valuations and adopting global strategies drive Asian outbound acquisitions

Increase on previous year Similar levels Decrease on previous year

Expectations are high that PE funds will either be increasing or at similar levels of buy-side activity (94%) and similarly with sell-side (89%) PE

China remains the most favoured target jurisdiction for M&A with Indonesia and India coming second and third respectively. Thailand and Vietnam feature strongly as M&A destinations. South East Asia when aggregated (even excluding Indonesia) eclipses China as the most popular area of focus

More balanced power between buyer and seller, although buyers still have the upper hand (60% vs. 40%). This is the closest it has been in the past four years. Managing stakeholders’ expectations is vital to bridge this gap

Positive sentiment towards M&A. 91% respondents expect an increase or similar levels of intra-Asia M&A activity over the next 12 months and 88% respondents expect an increase or similar levels for Asia Pacific outbound M&A activity

Seller’s unrealistic price expectations is the biggest negative for M&A. Concerns about local protectionism remains a major issue in cross-border M&A (72%) as does bribery and corruption (72%)

Consumer, Retail and Leisure is the hottest sector with 46% surveyed selecting it as a top three choice. This is 20% more than the next priority sectors TMT, Financial Services, Real Estate and Oil & Gas. Mining sector has fallen out of favour with only 16% selecting it as a top three priority sector

Desire to find new markets, Asia companies adopting a global strategy, desire to secure knowhow, technology and brands, and depressed valuations are cited as the top drivers for Asia Pacific outbound M&A

US is the top choice destination for Asian outbound M&A (55%), followed by Eurozone (54%), and Africa (27%) . This reflects the strategy of Asian companies to enter new markets and to acquire brands, technology and know-how

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Consumer, retail and leisure makes a big leap to take the top spot as the priority sector in this year’s survey, with 46% citing it as a top three choice, up from 36% last year. This contrasts with the mining sector which has plummeted, with only 16% of respondents selecting it as a top three choice, compared with last year’s 44%. Mining M&A has seen a marked slowdown, although 57% expect an increase in activity from current levels.

%

Source: FinanceAsia and Clifford Chance M&A Survey

Greatest investment

Greatest+ 2nd greatest investment

Total (Greatest+ 2nd greatest+ 3rd greatest)

Sector trends

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Financial services – Amy Ho, M&A Partner (Hong Kong) A strategic focus on core businesses and key markets continues to give rise to disposals in the Financial Services sector. Japanese banks and insurance companies have been particularly acquisitive, especially in South East Asia, as they seek access to new and growth markets. Insurance M&A has been very active and there has been strong competition for bancassurance opportunities, which are often combined with disposals.

Telecoms Media and Technology (TMT) – Dave Poddar, Corporate Partner (Sydney) European and US telecoms sector is attracting a lot of M&A interest. Low growth in home markets are driving consolidation and M&A investments further afield. These juggernaut transactions usually require substantial financing and thanks to a strong credit market, we expect more TMT M&A transactions in the coming 12 months.

Real Estate – Matt Feldmann, Corporate Partner (Hong Kong) Institutional investors including sovereign wealth funds and pension funds, as well as private equity funds chasing yield, have looked to real estate investments, which has been an under-represented asset class. The UK has been a favourite destination for many Asian investors as it is seen as a safe haven offering transparency. Valuations and yields are also very attractive with Japan real estate seeing a resurgence.

Consumer, retail and leisure – Kelly Gregory, M&A Partner (Shanghai) Global brands have been the top of the shopping list for many Asia-based companies. We are seeing a lot of investments using both a pure acquisition strategy, JVs and partnerships. Alternative structures such as JVs or partnerships can help to get the deal across the line, particularly as a strategy in dealing with foreign investment reviews.


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Mainland China 46%

Indonesia 37%

India 24%

8% Hong Kong

5% South Korea

3% Taiwan

9% Singapore

Thailand 17%

18% 12% Philippines

Malaysia 12%

Myanmar

16%

Asia Pacific inbound M&A Heat map shows territories expected to be the most popular for inbound M&A acquisitions in the next year to 18 months

18% Vietnam

12% Japan

16% Australia/ NZ

“The relative stability of Indonesia's political situation, has resulted in increased confidence in the jurisdiction, with both Fitch and Moody upgrading it to investment grade status in recent years. Furthermore, given that 60% of Indonesians are under the age of 30, this rising consumer class will generate tremendous growth opportunities in the consumer sector, primarily consumer goods and retail, but also financial services, healthcare, education and telecom media and technology.”

Emma Davies, M&A Partner, Shanghai and Hong Kong

Melissa Ng, M&A Partner, Singapore

“The Shanghai Free Trade Zone and proposed changes arising from the Third Plenum indicates China’s commitment to opening up its markets. Asian countries make up the bulk of its investors accounting for 83.6% of investment into China in the first 10 months of this year”


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US 55%

South America

24%

Africa 27%

Eurozone 54%

Target Country

No. of M&A deals Total value

USA 93 US$29bn

Eurozone 54 US$21bn

Africa 16 US$18bn

UK 45 US$15bn

Asia Pacific outbound M&A Heat map shows territories expected to be the most popular for Asia Pacific outbound M&A acquisitions in the next year to 18 months

UK 23% Canada

14% 15% Europe/other

14% Middle East Survey results correspond to current M&A transactions indicating these trends are likely to continue into the next year.

Mergermarket data (1 Jan 2013 to 30 Nov 2013)


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Key drivers…

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...and challenges

Asian companies adopting global strategy and desire to find new markets and growth are top drivers for Asia-led M&A

Congested pipeline resulting from relatively low levels of M&A in recent years

Cash and cheap debt strong companies with plenty of cash and access to cheap debt means funding for acquisitions not a major concern

Opportunism search for bargains and strategic opportunities previously unavailable

Desire to secure know-how/technology, brands are key drivers for TMT, CG&R and Industrial sectors

PE portfolio funds and investments cycles lack of exit options via equity capital markets means more assets up for trade sale

Strategic repositioning of financial institutions driven by regulatory change and focus on core businesses and markets, resulting in divestments

Lack of opportunities in home markets particularly relevant to low growth markets such as Japan

Confidence is returning as recovery in the US economy looks sustainable and Eurozone seems stable

Gap in buyers’ and sellers’ value expectations is seen as the biggest drag on M&A and stalling consummation of M&A deals

Concerns about local protectionism and antitrust growing complexity in navigating antitrust and other regulatory regimes

Insufficient comfort in respect of due diligence poor transparency heightens risk

Bribery and corruption global reach of bribery and corruption regimes necessitating increased scrutiny of investments and due diligence as well as issues with post acquisition integration

Possible setbacks to the economy from a wind-down of quantitative easing or potentially dangerous asset ‘bubbles’ caused by low interest environment

Lack of attractive targets companies are holding on to quality assets

Difficulties achieving cross-border integration preventing realisation of expected synergies


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South East Asia

Largely seen as a region for inbound investments, but we have also seen an increasing number of high-profile outbound acquisitions by South East Asian companies both within Asia and further afield.

A number of PE houses have set-up offices in Singapore to be closer to the market. A key factor for successful M&A in the region is local knowledge and an understanding of cultural issues.

Hot sectors include consumer goods and services, financial services, natural resources and infrastructure.

China

China remains the perennial favourite as an M&A destination due to its market size and growth potential. CG&R continues to be a strong

investment sector with a growing middle class with increasing disposable income.

There is stronger interest from foreigners in real estate, with a focus particularly on first and second tier cities, especially Shanghai.

Financial institutions continue to seek acquisitions and strategic stakes to build their businesses and platforms. A few more foreign investors have disposed of minority stakes. Chinese banks have been expanding overseas, often organically, although some acquisitions.

North Asia

There is generally lower interest in M&A in Japan and South Korea due to their mature markets. However, recent activity such as KKR’s acquisition of Panasonic Healthcare and Ascott Reit’s purchase of a number of real estate properties indicate there are opportunities for strategic buys, particularly in Japan real estate, where prices may have touched bottom.

Australia

Australian M&A has been subdued, largely due to the strong Australian dollar, tight capital and debt markets, falling commodities prices and political uncertainty associated with a minority government. Each of these negative factors is lessening, and activity is picking up. In mining, good prices were paid for

copper and coal assets sold by Rio Tinto (by China Molybdenum, Glencore and Sumitomo) and many predicting the bottom of the coal and copper pricing cycle.

In agri-business, there is a hotly contested international takeover battle for Warnambool Cheese and Butter raging which has set a world record price for the target. Agri remains active in part due to the need for food security.

Real estate and other yield assets are keenly contested, including by PE funds and pension and sovereign wealth funds.

Opportunities for Asia Pacific Companies Intra-Asia Pacific

US$34bn was invested into Africa during the first nine months of 2013 through 102 transactions. M&A activity in 2013 was characterised by an increased focus on the African consumer. Middle classes with disposable income are growing rapidly and demand for consumer goods and services has soared with investors tracking the entire value chain leading to the African consumer.

Resources dominate

The largest M&A transactions are dominated by resources deals for example, China National Petroleum Corporation's US$ 4.2bn acquisition of a 28.6% stake in Eni East Africa Spa. Seven out of the top 10 deals in 2013 have been in the resources sector and within this, three of the acquirers have been Chinese.

Regulatory changes

M&A activity in oil and gas in Nigeria is being stimulated by regulation promoting local content and the anticipated enactment of the petroleum industry bill. It is also driven by privatisation of the electricity sector. Adequate power supply is a key pre-cursor of future industry development.

Consumer facing

The growth of the African middle class with increased spending power is a significant driver of activity. The

consumer sector is amongst the busiest sectors for cross border activity, as an area already with one billion customers.

Telecoms

Africa is the fastest growing telecoms market in the world and remains underpenetrated by developed market standards. Non-voice usage is driving demand for data and the telecoms infrastructure to support it. Consolidation between operators is likely to continue, as is continued innovation in asset sharing such as telecom tower sale and leaseback transactions. The biggest M&A deal has been in telecoms where Etialat gained control over the biggest wireless carrier in Morocco for US$5.7bn.

Financial services

Activity in this sector continued as Actis sold its majority stake in Ugandan lender DFCU Limited for US$ 43.2m to Rabo Development B.V. and The Norwegian Fund for Developing Countries.

Private equity

The size and number of funds continue to increase. Global PE funds (not just specialists) are targeting the market with dedicated funds and institutional investors are increasingly looking to commit capital to African sponsors. Domestic pension funds are unlocking allocations to PE as seen in Botswana and Nigeria.

Africa

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Germany/Benelux/Finland/Austria

Strong balance sheets/cash reserves and relative immunity from the distress in other parts of Europe means sellers’ valuations remain high and limited distressed opportunities are arising.

Investors are targeting strong industrial technology to develop home operations (eg Jianshu Jinsheng’s acquisition of the textile machinery division of Oerlikon).

France

Expectations are that large corporates will once again be able to make strategic decisions, seizing investment opportunities and executing divestment strategies.

PE sector remains slow due to recent legislative/tax measures having a particular impact on PE transactions.

Portugal/Slovenia

Sovereign divestments now underway (eg airports) – particularly attractive to larger international buyers with strong cash positions, looking for right opportunities to expand their core businesses; also purchasers from growth markets, including those with limited cross-border M&A experience.

CEE

Poland, Czech Republic and Slovakia where prospects for a recovery in demand seem to be strongest due to their close trade ties with Germany, relatively low debt levels and a healthy banking sector.

Although CEE seen increasingly less as a single market, there are many examples of buy-and-build opportunities in certain sectors across the region.

Energy and infrastructure are key sectors. Infrastructure funds are taking a keener

interest in the region. EU membership helps and the first investments are beginning to establish a precedent.

An increasing number of “Mittelstand” deals are coming to the market, so businesses built up in the 90s by entrepreneurs or families are being sold.

UK

UK is one of the most foreign investment friendly jurisdictions globally. Well run companies, many with exposure to a variety of international markets, along with economic growth are also attracting investors.

Prime Minister David Cameron's trade mission to China underlines the importance of China's investment to the UK. Infrastructure is a key sector, highlighted by the recent decision allowing Chinese investors to invest in UK's nuclear power plants.

Real Estate is also a key target sector for investment with ICBC, CIC, Ping An Insurance and Singapore's GIC buying commercial property, as well as investing in building developments across the country.

Italy/Spain

Distressed assets on the market in the consumer and real estate sector. Sovereign divestments /privatisations also creating opportunities for infrastructure and strategic investment. Wave of disposals of non-core businesses by large corporates/ financial institutions continues.

Top brand and retail/consumer industries being targeted by foreign/local competitors in Italy; financial investors also interested in assets generally.

Company valuations are low, and interesting targets are available at attractive prices.

Opportunities for Asia Pacific Companies Europe

Market sentiment

CEO confidence has increased over the past three quarters. The S&P 500 is up over 20% YTD; valuation levels remain attractive; US debt markets are strong; US buyout activity is on course for its highest level since 2008; and cash on US corporate balance sheets remains high.

Telecoms, Media, Technology

The TMT sector has been one of the headline M&A sectors in the US, largely with the Vodafone and Verizon deal, the third largest M&A deal in history, and the Liberty Global and Virgin Media deal. US providers have limited growth in their home markets and are looking to M&A to find growth. The M&A activity is not one-way with Japanese tech and telecoms group, SoftBank Corp. buying Sprint Nextel for US$21.6bn.

Opportunities are also seen in the media space, particularly traditional media such as newspapers which have been struggling in the face of social media and online services.

US continues to be the leader in technology although as a sensitive industry, obtaining clearance is a major hurdle.

Natural resources

The US's vast and newly accessible gas and oil produced by hydraulic fracturing and horizontal drilling techniques has created a need for massive investment to develop and transport the new shale supplies to major markets. Asian

companies have been active in acquiring US businesses including Sinopec’s US$1.02bn acquisition of stake in Chesapeake Energy and Chemical, and the US$7.5bn acquisition of EP Energy by Korea National Oil Corporation together with an Apollo-led group.

Consumer, Retail and Leisure

Food industries are popular targets for Asian companies. Shuanghui’s acquisition of Smithfields highlights China’s drive to secure food supplies. Similarly, Del Monte Pacific, a Philippines-based company, has also bought up Del Monte Foods Consumer Goods for US$1.675bn. American brands are also attractive with Australian firm Oroton taking in a 51% interest in Brooks Brothers.

Potential drags

Economic uncertainty still surrounds the US economy: – unresolved US budget and debt

ceiling issues – potential effects of a wind-down of

quantitative easing Valuations are going up Transactions are difficult to get done.

– Political issues – for example in the energy sector

– Regulatory activity – for example antitrust and CFIUS

– Shareholder activism – in approximately 50% of US M&A activity, activists are making demands either on the bidder or the target

United States

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Creditworthiness of PE Buyers – as PE Funds invest through SPVs, Sellers

likely to require comfort around certainty of funding of PE Buyer

Parent comfort – PE Funds usually restricted from guaranteeing the

underlying performance of their SPV Buyer's obligations

Management – PE Buyers likely to require some / all of target's senior

managers to commit to employment and to be equity incentivised)

Desire for a "clean break" – PE Sellers eager to distribute proceeds

asap to their LP investors

Locked Box - whilst still uncommon, some increased use of "locked box" pricing mechanics eliminating need

for post-closing adjustments

Limited rep and warranty protection – both in terms of scope and

financial exposure of PE Sellers (e.g. claim period, financial cap)

Escrow / Retention Accounts – utilized to provide financial backing to limited post-closing exposure of

PE Sellers

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A closer look at private equity Expectations are high that PE funds will either be increasing or maintaining similar levels of activity on buy-side (94%) and sell-side (89%). Such buy-side activity will be fuelled by the estimated US$121 billion of dry powder to invest.* Sell-side activity reflects the maturing of the Asia PE industry and the fact that many portfolio companies are at the end of their hold cycle. As PE funds have a unique approach to investments and exits, understanding how they work is key to consummating a transaction with them.

* Preqin Special Report: Asian Private Equity, September 2013

Dealing with PE sellers Dealing with PE buyers “We have seen a significant pick up in PE-driven M&A activity over the second half of 2013 and anticipate this to continue through 2014. With many recent successful fundraisings, together with healthy debt availability, PE investors have significant available resource to fund their investments / acquisitions. The return of buoyant capital markets, together with healthy trade and sponsor interest, should also continue to ensure strong exit activity by PE investors.”

Andrew Whan, Co-head of Private Equity, Asia Pacific


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Protectionism remains a concern in some regions, particularly towards acquisitions by Chinese companies. 72% of respondents identified protectionism as one of the most significant concerns for acquirers, up from 67% last year. International M&A transactions are subject to an ever-increasing number of merger control, foreign investment and national security reviews creating risks for deal execution and value realisation.

Japan’s telecommunications business, Softbank, received clearance for its proposed acquisition of Sprint, a US communications company, from the Committee on Foreign Investment in the US (CFIUS). There were unusual conditions attached to the clearance which included a US-government approved Sprint board member to oversee national security compliance

The bid for American pork producer Smithfield Foods by Shuanghui, China’s biggest meat processor triggered intense political debates as well as CFIUS review. After a full 75 day allowable review period, CFIUS eventually granted clearance for the transaction.

Canada’s Prime Minister announced a more restrictive approach to acquisitions by state-owned companies: “To be blunt, Canadians have not spent years reducing the ownership of sectors of the economy by our own governments only to see them bought and controlled by foreign governments instead”

EU governments appear more concerned with preventing flight of existing jobs and investments than with rejecting new foreign investment on national security grounds:

Proposed merger of BAE and EADS abandoned after EU governments failed to agree on their respective levels of influence over the company

ArcelorMittal’s announced closure of production assets in France triggered threats of forced nationalisation from the French government

Protectionism in ongoing trade disputes has not spilled over into M&A. For example, the UK Prime Minister told Chinese investors in May “I’m not embarrassed that you own 10 per cent of our biggest water company or a big chunk of Heathrow airport. I think it’s absolutely great. We want to be the destination for Chinese investment.” Similarly, the French Prime Minister promised to “break down every barrier” to investment by Chinese companies in France

In recent years, there has been a marked increase in nationalisation or expropriation of foreign-owned assets in Latin America, Asia and Africa and this trend continued in 2013.

In particular, cross-border M&A may be seen as an opportunity for a State to change the terms of a resource exploration and production arrangement in its favour for strategic or nationalistic reasons.

For example, the Mozambique government demanded a “fair amount” in taxes as a condition of clearing the transfer of Cove Energy’s exploration licence to its new owner PTT.

It can also give importing States an opening to lock in favourable supply terms as a condition of merger control clearance. For example, the Chinese merger control authority approved the Glencore/Xstrata deal but they were required to guarantee minimum supply volumes to China at annual contract prices for eight years.

Navigating political pressures and protectionism

North America: National security concerns

Europe: More welcoming?

Worldwide: Resource nationalism on the rise

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Global merger control Proliferation of merger regimes More than 100 jurisdictions worldwide now have merger control laws New/reformed antitrust regimes in the UK, Germany, Brazil, UAE, India and COMESA

A new global order China now reviews as many deals as the EU The EU has been consistently the most interventionist of the three major regimes, with two

prohibition decisions so far in 2013 (Ryanair/Aer Lingus and UPS/TNT) US enforcement rates are on an upward turn

Global antitrust enforcement Increasing cooperation across the globe Various cooperation agreements now in place – China has MoUs with authorities in the EU, US and

Korea; new EU/Switzerland Cooperation Agreement Coordinated investigations becoming more common – simultaneous dawn raids in automotive parts

(EU, US, Japan), and refrigeration equipment (EU, US, Brazil) Many jurisdictions now have a criminal cartel or big rigging offence Leniency programs now almost globally available Private enforcement Long-awaited proposed EU Directive on antitrust damages claims Private litigation on the increase in China but few successful claims Different approaches to private enforcement across Asia mean this can be difficult territory for

companies to navigate

Antitrust trends Getting antitrust right has never mattered more. For both corporate and individuals, the consequences of breaching the rules are potentially eye watering. In an M&A context, a well-executed merger control strategy can be the difference between success or failure for a transaction.

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Stra

tegi

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nsid

erat

ions

Timing Have a timing strategy (e.g.

consider if beneficial to file in one jurisdiction first or do parallel review)

Be disciplined on timing and

deadlines

Preparation and consistency Ensure a consistent story across

jurisdictions Prepare early - regimes may request pre-

notification (e.g. EU) and/or more economic /data intensive input

Wider context Understand how countries may exercise

sovereignty over deals More regimes are taking non-competition

factors into account (e.g. via ‘public interest’ and ‘national security’ tests)

Engage public/government relations teams where necessary and at an early stage

Recent developments

Procedural and substantial divergences across regimes create risks for deal execution and value realisation

Increasing information demands by regulators resulting in longer review processes and extended pre-notification

Remedies are often a critical part of the process – failure to produce a convincing buyer can be fatal (e.g. UPS/TNT)

Protectionism arises in different guises and requires local knowledge and sophisticated deal planning

Range of innovative contractual and structural solutions that mitigate antitrust risk or shift it to the buyer

Merger control risks


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Anti-bribery and corruption in M&A

■ Due diligence and compliance issues in relation to anti-corruption and money laundering can significantly affect valuations and deal dynamics

■ Post acquisition acquirers may also be exposed to significant risks including:

- Financial – fines and orders for the disgorgement of profits, loss of contracts or licenses due to improper payments, termination of the ability to use intermediaries or other sources of revenue and restrictions on financing due to lowered credit rating

- Regulatory – investigations involving significant management time, costs and resources required to deal with investigations and to implement or upgrade compliance programmes

- Reputational – adverse publicity and damage arising from investigations and rulings

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Anti-bribery and corruption is a significant concern for investors in M&A transactions, particularly in emerging markets. 72% of survey respondents list bribery and corruption as one of the most significant concerns for companies looking at targets in Asia Pacific. The region is viewed as one of the riskiest for corruption with only 9 out of 27 countries receiving a passing grade of 50 points on the 2013 Transparency International’s Corruption Perception Index. Country 2013 Rank 2013 Score

New Zealand 1 91 Singapore 5 86 Australia 9 81 United Kingdom 14 76 Hong Kong 15 75 Japan 18 74 USA 19 73 Bhutan 31 63 Taiwan 36 61 Brunei 38 60 South Korea 46 55 Malaysia 53 50 China 80 40 Mongolia 83 38 Sri Lanka 91 37 India 94 36 Philippines 94 36 Thailand 102 35 Indonesia 114 32 Vietnam 116 31 Nepal 116 31 Pakistan 127 28 Bangladesh 136 27 Papua New Guinea 144 25 Laos 140 26 Myanmar 157 21 Cambodia 160 20 Afghanistan 175 8 North Korea 175 8

Transparency International’s 2013 Corruption Perception Index

“Companies moving into Asia Pacific must not only weigh the risk of UK and US anti-corruption enforcement but also the increasing reality of proactive local law enforcement. For example, multi-national corporations have recently found themselves the focus of China’s crackdown on corruption, a trend that is spreading as international law enforcement agencies cooperate across borders to share information and best practices.”

Wendy Wysong, Partner, Litigation and Dispute Resolution, Hong Kong

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Deal Structuring Traditional acquisition of control is still the most preferred structure according to survey respondents (30%) but joint ventures (29%) and alternative deal structures such as partnerships with private equity and other financial investors (21%) are attractive as a way to share risk and to get the deal across the line.

JV and alternative

deal structures

Risk sharing

(financial, legal and cultural) Potential

for attractive returns

May address

valuation gap

Foreign ownership restrictions

Stepping stone to

acquiring 100%

Sharing of expertise

and know-how

May reduce risk of

protectionist reaction

Antitrust issues

Deal structuring and pricing gap

Bridging the pricing gap

59% of respondents believe sellers’ unrealistic price expectations is a drag on M&A. It was ranked as the biggest drag on M&A by most respondents and alternative forms of structuring can help to mitigate risk. The challenge of bridging the pricing gap can be addressed, at least in part, by the following:

Contingent or deferred consideration e.g. earn-out

Vendor retained stakes

Staggered sales

Purchaser clawbacks

Vendor financing

Warehousing

“Outright control acquisitions in China are less common and foreign investors have used a variety of alternative deal structures in pursuit of their strategic objectives. A key to success is to ensure the parties’ plans and interests are aligned, and as far as possible, reflected in the transaction documents.”

Terence Foo, M&A Partner, Beijing


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About the survey: This is the seventh year in which Clifford Chance and FinanceAsia have collaborated on a regional M&A survey. Some 207 respondents expressed their views in October 2013, with 75% at CEO, MD, CFO or director level. FinanceAsia was appointed to conduct this M&A trends study by engaging with leading decision makers and M&A professionals using an online survey. The goal was to gauge perceptions on the very latest market conditions and identify M&A trends in Asia Pacific.

*

* Denotes less than 0.5 percent

*

Respondents’ Profiles (%)


Clifford Chance

Global Matthew Layton T: +44 20 7006 1229 E: matthew.layton @cliffordchance.com

Africa Kem Ihenacho T: +44 20 7006 1348 E: kem.ihenacho@ cliffordchance.com

Asia Pacific Roger Denny T: +852 2826 3443 E: roger.denny@ cliffordchance.com

Australia Danny Simmons T: +61 28922 8007 E: danny.simmons@ cliffordchance.com

Belgium Philippe Hamer T: +32 2533 5912 E: philippe.hamer@ cliffordchance.com

Brazil Anthony Oldfield T: +1 212 878 3407 / +55 11 3019 6010 E: anthony.oldfield@ cliffordchance.com

Central and Eastern Europe Alex Cook T: +420 22 255 5212 E: alex.cook@ cliffordchance.com

China Emma Davies T: +852 2825 8828 E: emma.davies@ cliffordchance.com

France Gilles LeBreton T: +33 14405 5305 E: gilles.lebreton@ @cliffordchance.com

Germany Arndt Stengel T: +49 69 7199 1486 E: arndt.stengel@ cliffordchance.com

India Neeraj Budhwani T: 852 2826 2428 E: neeraj.budhwani@ cliffordchance.com

Indonesia Melissa Ng T: +65 6410 2254 E: melissa.ng@ cliffordchance.com

Italy Paolo Sersale T: +39 028063 4274 E: paolo.sersale@ cliffordchance.com

Japan Andrew Whan T: +81 35561 6615 E: andrew.whan@ cliffordchance.com

Korea Hyun Kim T: +82 2 6353 8118 E: hyun.kim@ cliffordchance.com

Middle East Nigel Wellings T: +971 4 362 0676 E: nigel.wellings@ cliffordchance.com

Netherlands Hans Beerlage T: +31 20711 9198 E: hans.beerlage@ cliffordchance.com

Russia Marc Bartholomy T: +7 495 797 9893 E: marc.bartholomy@ cliffordchance.com

Singapore Simon Clinton T: +65 6410 2269 E: simon.clinton@ cliffordchance.com

Spain José María Fernández-Daza T: +34 91590 9466 E: josemaria.fernandez-daza @cliffordchance.com

Thailand Andrew Matthews T: +66 2401 8822 E: andrew.matthews@ cliffordchance.com

Turkey Itir Çiftci T: +90 212339 0077 E: itir.ciftci@ yeginciftci.av.cr.

United Kingdom Simon Tinkler T: +44 20 7006 1684 E: simon.tinkler@ cliffordchance.com

United States Craig Medwick T: +1 212 878 8281 E: john.healy@ cliffordchance.com

Global M&A team – Key contacts

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Clifford Chance Finance Asia survey 2013

Economy & Finance

south east

asia pacific

alternative

japan real

real estate

asia pacific

asian outbound

pe funds