Asia-Pacific M&A deal volume drops 30% in first half

Asia-Pacific M&A deal volumes fell almost 30% in the first half from a year earlier as the economic strain arising from the euro zone crisis forced companies to shy away from taking big takeover bets.

The decline was broadly in-line with the drop in mergers and acquisitions activity worldwide as global economic and political uncertainty reined in companies' expansion plans. Southeast Asia was a bright spot in the Asia-Pacific, partly offsetting sluggish deal flow elsewhere in the region.

Bankers are monitoring the debt discussions in Europe, China's political changes and the U.S. election.

"The political environment across the world at the moment is not conducive to deal making," Goldman Sachs Asia-Pacific M&A head Richard Campbell-Breeden said. "We think companies are going to wait for clarity before taking risks."

Reflecting that sentiment, Asia-Pacific deal volumes fell 29.5% to $223 billion in the first half, according to preliminary data released by Thomson Reuters.

M&A targeting Asia-Pacific firms dropped 30% to $177 billion.

U.S.-targeted M&A fell 44%, while European deal volumes were just down 7%, thanks to Glencore's proposed takeover of miner Xstrata.

Goldman Sachs topped the Asia-Pacific league table with $33.5 billion worth of deals, followed by Morgan Stanley and Credit Suisse.

Private equity-backed M&A fell 55% as the valuation gap between buyers and sellers remained a hurdle for deals. Despite a second-quarter pick-up, the volume, at $8.8 billion, was the slowest start to a year since 2009.

"In the current environment, meeting of minds on valuation remains a challenge," said Peter Plakidis, head of Asia-Pacific financial sponsors group at Deutsche Bank.

Investment insiders say that business owners are still expecting the high valuations they could achieve through a public offering, which is stalling private deals.

Southeast Asia

China was the most active M&A market in Asia, grabbing 38% of the total. Deals in Indonesia and Malaysia saw a huge pick up, with volumes rising 62% and 33%, respectively.

Many Asian buyers are being cautious about the distressed opportunities arising from euro zone crisis as they do not foresee a quick solution to the problem yet, bankers said.

Outbound deals from Asia, a major source of fees for deal makers in this region, are also slowing due to the impending leadership changes in China, which has historically led that activity.

Campbell-Breeden cited China's leadership change as a major political uncertainty weighing on deal making in the region.

"Political risk in China and the United States should dissipate by October and November. China outbound deals should pick up once the leadership change in Beijing is done," he said.