Major survey reveals massive M&A deal flow set to continue

A global survey reveals that the recent, significant growth in the Asia Pacific M&A market is expected to continue – and a Kiwi corporate partner agrees

A major survey from global technology provider Intralinks Holdings has revealed that dealmaker sentiment in the Asia Pacific (APAC) M&A market is reaching new highs.

The results were published as part of the Intralinks Global Sentiment Survey, which polled more than 1,000 M&A professionals worldwide in June this year in order to gauge dealmakers sentiments and views on the current state of the M&A market.

Among a variety of perceptions for the APAC area, it was uncovered that 80% of dealmakers in this jurisdiction predict that deal volume will increase over the next six months, compared with 77% globally.

Dealmakers also indicated they are optimistic about the current deal environment in comparison to the previous six months, with 65% saying this is so in the APAC region (compared to a slightly higher 67% globally).

However, deal valuation continues to be the biggest problem in the Asia Pacific M&A space.

Respondents said they believe deal valuation represents a greater challenge to the deal process than other factors such as shareholder activism against underperforming companies, or political interference.

The vice president of M&A strategy and product marketing at Intralinks Matt Porzio told NZ Lawyer that valuation can quickly become a significant issue and impact on successfully completing a deal.

“If there is a discrepancy in valuation, either on the acquirer or seller's side, it can expose the deal to greater risk and potentially extend the overall deal completion timeline, not to mention create expectation gaps between parties, increase the risk of overpaying for targets, and impact earnings,” he says.

Apart from this challenge, Australasian dealmakers are optimistic about the current deal landscape in comparison with the previous six months, he says.

Porzio predicts that future trends will include measurable growth in shareholder activism campaigns across the board, from corporate governance, dividend distributions and divestiture campaigns.

“We’ve already seen examples of inbound activism from US funds such as Lone Star’s governance campaign against Antares, as well as local funds taking a more involved investment approach, such as Allan Gray. With activists’ returns hovering around the 25% range, we see an influx of funds seeking these market opportunities.”

Law firms should look towards encouraging companies prepare for non-traditional deal structures and tactics that aren’t yet native to the Australasian landscape, he says. While everyone expects to see more deals, the fact that valuation gaps pose the highest risk to execution may see acquirers employing various tactics to creatively pressure corporate balance sheets, boards and valuations.

Simpson Grierson partner and head of the firm’s corporate and commercial department Michael Pollard says the Intralinks results “definitely” echo what we’re seeing in New Zealand.

While the first half of 2013 saw a return to M&A deal flow, this really started to accelerate from November last year, he told NZ Lawyer.

This spells good news for firms of all sizes, he says.

“The good strong commercial firms will start to see more growth and revenue in the commercial departments. When it’s quiet you typically see the big firms start to compete for smaller mandates, which makes is tough for the second tier firms.”

Recent trends have seen law firms becoming more customer focused, inventive and dynamic, and it’s vital that this continues in order to stay successful in the rapidly changing market space, Pollard says.

However a major challenge to look out for could come from the equity capital market, especially if we see some shocks out of China.

“The equity capital market is very hot in New Zealand at the moment and we’re hoping there is no change there – we don’t want to be in a little bubble of our own,” he says. “If we have some adverse shock somewhere, the positivity we’re experiencing may evaporate.” 

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