(Corrects Sheppard's title to co-head of EMEA M&A at Deutsche
Bank)
By Denny Thomas and Sophie Sassard
HONG KONG/LONDON, April 1 (Reuters) - Global mergers and
acquisitions (M&A) activity dropped 14 percent in the first
quarter to $669 billion as market volatility put a break on
dealmaking but that did not discourage Chinese companies from
seeking Western targets.
China's voracious appetite for overseas acquisitions has
propelled Asia to the forefront of global deal-making for the
first time, with investment bankers hoping Chinese buyers will
continue to support an otherwise slowing M&A market.
China outbound cross-border M&A totaled $101.1 billion in
the first quarter, nearly surpassing the full year record of
$109.5 billion set last year, according to preliminary Thomson
Reuters data.
Overall, however, increased market volatility made it more
difficult for company boards and their chief executives to pull
the trigger on big transformative deals, in contrast to the
record levels of activity seen last year.
"The rationale to drive bottom line growth through
consolidating transactions persists," said Gregg Lemkau, global
co-head of M&A at Goldman Sachs Group Inc (NYSE:GS) GS.N . "What clearly
slowed things down in the first quarter is the volatility and
the negative sentiment in the equity markets generally."
Deal activity in the United States fell by more than a
quarter, while Europe scored its best quarter in 5 years, up by
11 percent from last year. But European M&A could suffer until
Britain votes in June on whether to remain in the European
Union.
Chinese companies, on the other hand, are expected to
continue their shopping spree as the world's second-biggest
economy slows after blistering growth in the past decade,
pushing executives to diversify their geographic footprint ahead
of any further currency devaluation.
"The Chinese phenomenon is remarkable," said Dietrich
Becker, London-based investment banker with Perella Weinberg
Partners. "I haven't seen a single sale process recently where
there is no Chinese interest."
China National Chemical Corp struck the largest deal so far
this year with its $43 billion acquisition of Swiss seeds and
pesticides group Syngenta SYNN.S . The deal, however, is poised
to face intense scrutiny in the United States ahead of
November's presidential election.
China's non-state companies, from Anbang Insurance Group to
Haier Electronics Group 1169.HK , have shown their deal-making
muscle by pursuing offshore opportunities. Not all have been
successful, with Anbang unexpectedly walking away this week from
a $14 billion bid for Starwood Hotels & Resorts Worldwide (NYSE:HOT) Inc
HOT.N .
"It's shaping up to be a busy year for China outbound M&A,
and I don't think the trend is changing anytime soon," said
Brian Gu, co-head of Asia-Pacific M&A at JPMorgan Chase & Co (NYSE:JPM)
JPM.N . "You will see new names coming up, especially from the
private sector, while in the past we only had some serial
acquirers," he added.
Asia's share of global M&A reached 27.1 percent in the first
quarter, just ahead of Europe, from a historic average of about
20 percent. Goldman Sachs topped the global league table,
followed by JPMorgan and Credit Suisse Group AG CSGN.S .
As more and more Chinese suitors seek large global deals,
their credibility is on the rise. As well as real estate and
financial services, Chinese companies are on the lookout for
consumer brands, energy resources and high-end manufacturing.
"In the past people have questioned their motivation and
their ability to do deals, but when you see a company like
ChemChina acquiring Syngenta, you realize that they are very
savvy, very agile and very strategic in the way they approach
deals," said Severin Brizay, head of European M&A at UBS Group
AG UBSG.S .
MORE CONSOLIDATION
"We think that 2016 M&A volume will be below the record
levels of 2015, but should be above 2014 and 2013. There is
still a lot of cash on corporate balance sheets, and financing
is cheap and readily available for investment-grade companies,"
said Larry Hamdan, Americas M&A head at Barclays Plc BARC.L .
Bankers expect consolidation in the industrials sector, up
56 percent so far this year, will continue driving activity as
the segment remains fragmented and suffers from overcapacity.
Large transactions should also take place in the energy,
consumer goods and healthcare spaces, bankers said, pointing to
mergers of equals, stock deals and asset swaps as helpful
transactional structures in a volatile market.
"We have seen a number of mergers of equals which makes
sense in a more uncertain market," said Richard Sheppard,
co-head of EMEA M&A at Deutsche Bank (DE:DBKGn). "With the right partners,
these are often attractive structures where both parties share
the risks and rewards of the combination."
Private equity buyouts, which registered their strongest
start of the year since 2014 thanks to private equity firm
Apollo Global Management LLC's APO.N $6.9 billion acquisition
of home security provider ADT Corp (NYSE:ADT) ADT.N , are also expected to
pick up as the leveraged finance markets improve.