CFA Society Singapore
SINGAPORE (Mar 26): Baker McKenzie is forecasting for Asia Pacific’s financial merger and acquisition (M&A) deals to hit US$122.7 billion ($160.9 billion) this year, coming in only after Europe and North America at the projected deal values of US$195.7 billion and $259 billion, respectively.
In the multinational law firm’s 2018 Global Transactions Forecast sector report for financial institutions, Baker Mckenzie foresees financial deals to accelerate throughout 2018 and beyond amid continued consolidation, ultra-low interest rates, tech-enabled disruption and regulatory pressure.
In all, its research, developed in associated with Oxford Economics, anticipates global M&A values in the financial sector to rise to US$616 billion in 2018, up 25% from US$424 billion a year ago with global IPO values growing nearly 40% to US$84 billion on the back of capital raised by fintech unicorns.
In 2018, it expects M&A in Asia Pacific’s financial sector to rise 60% above 2017 levels, driven by Chinese outward investment.
Financial IPOs are particularly expected to be the key drivers of growth for both the region and globally, with numerous fintech companies in Asia Pacific also tapping the IPO markets, as well as insurance companies in countries like India.
While Baker Mckenzie acknowledges that other players in Asian financial services are much newer than their large Japanese banking counterparts, it believes the former will have a global impact in 2018 and beyond, led by two distinct camps.
The first comprises Chinese startups Alibaba, Ant Financial and Alipay, given the diverse applications of their technologies to the region’s businesses and inclinations to make acquisitions, such as Alibaba’s recent bid for US company MoneyGram International.
The other camp is made up of Tencent and WeChat Pay, which have almost a billion customers in China combined and frequently hit annual growth of 50%. Baker Mckenzie also notes that WeChat Pay is in the midst of expanding internationally with a focus on Chinese tourists abroad, and making deals with global payment services such as Ayden, CITCON and Airwallex.
Citing S&P data, Baker Mckenzie highlights that four out of the world’s five largest banks are Chinese, which reflects “the growing clout” of the region’s financial sector.
“As the largest economy in Southeast Asia, Indonesia has been targeted by many foreign banks, as demonstrated by recent acquisitions by HSBC, China Construction Bank and The Bank of Tokyo-Mitsubishi UFJ,” says Erwandi Hendarta, a banking and finance partner at Hadiputranto Hadinoto & Partners (HHP Law Firm), a member firm of Baker McKenzie in Jakarta.
“We expect these types of transactions to continue for several years,” he adds.
Following the expected peak in deal activity this year, Baker Mckenzie sees a drop in M&A and IPO transactions in the financial sector in 2019 with a larger, worldwide trend of cooling deal activity in developed markets.
An exception would be the private equity (PE) driven deals, says the firm, as they apply their vast dry powder cash stockpiles and consolidation in Europe if the EU’s banking union plans are implemented.