Deal values for the region totaled approximately US$127bn, outpacing US$82.7bn in 1Q 2013. The rebound is taking shape as confidence returns to the market amid greater global economic stability. A number of other positive indicators, including a recovery in the eurozone and abating fiscal problems in the United States, are also creating a renewed appetite for M&A among the region’s well-capitalized corporate acquirers and foreign investors.

Asia-Pacific M&A Barometerissue 1

Mergers and acquisitions (M&A) activity in Asia-Pacific reached record levels in 1Q 2014, hinting that a slow but steady recovery may be in progress.

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Asia-Pacific M&A volume and value comparison

Number of Deals Deal value (US$bn)

Trends in 1Q 2014

725 number of deals

Top three countries by number of deals:

247 China

100 Japan

100 Australia

Top three sectors by number of deals:

20% industrials & chemicals

17% TMT

12% Consumer

Top three sectors by deal values:

16% Consumer

15.5% real estate

15% TMT

54% number of deals valued below us$50m as a percent of total regional deal volume

38%number of deals valued between us$51m and us$500m

US$127.3bn deal value

Top 5 deals for 1Q 2014

Target Company Target sector Target Country Bidder Companydeal Value

(us$m)

Shanghai Greenland (Group) Co Ltd

Real estate ChinaShanghai Jinfeng Investment Co Ltd

$10,572

Hanjin Shipping Co Ltd (stake acquisition)

Transportation South KoreaHanjin Shipping Holdings Co Ltd

$7,717

Oriental Brewery Co. Ltd. Consumer South Korea Anheuser-Busch InBev NV $5,800

A.S. Watson & Co Limited (stake acquisition)

Consumer Hong Kong Temasek Holdings Pte Ltd $5,666

Cheil Industries Inc.Chemicals and materials

South Korea Samsung SDI Co Ltd $3,397

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Asia-Pacific sector breakdown (1Q 2014)

Industrials & chemicals

TMT Consumer Energy, mining &

utilities Financial services Business services Leisure Pharma, medical

& biotech Transportation Real estate Construction Agriculture

Number of M&A transactions in Asia-PacificThe Chinese market maintained its position as the most active frontier for M&A across Asia-Pacific with the announcement of 247 deals in 1Q 2014. Deal activity was driven by a number of consolidations in the manufacturing and industrials space, particularly in steel, cement, and solar power, as overcapacity issues are addressed through M&A.

Deal making in Asia’s financial hub Hong Kong also saw an uptick from the same period last year, although not as pronounced as China with 33 deals in 1Q 2014 from 29 in 1Q 2013. M&A in Singapore, Asia’s other financial center, likewise rose year on year, from 15 deals in 1Q 2013 to 33 in 1Q 2014.

Asia’s developed markets of Australia and Japan maintained their places as the second and third most active markets, although deal activity in Japan saw a decline of 25 deals from the first quarter of 2013.

Deal values across Asia-PacificDeal values in 1Q 2014 reached US$127bn. A number of mega deals contributed to the quarterly total, including the US$10bn acquisition of Chinese real estate developer Shanghai Greenland.

China-focused M&A totaled US$48bn, a substantial increase from 1Q 2013’s US$30bn. South Korea saw deal values increase from the same quarter in 2013 to reach US$25bn from only US$8bn. This figure was bolstered largely by six deals valued above US$1bn, with three of those transactions in the US$3bn to US$10bn range. Deal values in Hong Kong nearly doubled from US$4.7bn in 1Q 2013 to US$8.1bn in 1Q 2014.

Sector breakdownWhile the traditionally deal heavy industrials & chemicals sector held the top spot in terms of M&A activity for 1Q 2014, the TMT and consumer sectors also accounted for noteworthy portions of the region’s M&A pie. The two sectors saw combined deal volume of 30%, and 31% of deal dollars.

Deals in the tech segment were focused on acquisitions of computer software and Internet and e-commerce companies. While the most visible acquisitions have been completed by market leaders – such as China’s Baidu and Alibaba Group – the race for market supremacy has seen middle market players enter the arena.

Deal activity in consumer M&A is being driven by rising middle classes and shifting demographics. Asia’s consumer classes, highlighted by tech-savvy youths with changing consumer tastes, has piqued interests from domestic and foreign investors, both groups looking to tap into the region’s potential.

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Asia-Pacific deal values (Top 10 by jurisdiction)

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1Q 2014 Top SectorsSector breakdown

By number of deals

China Australia Japan South Korea

India Hong Kong Singapore

Malaysia New Zealand Indonesia

By value of deals

China Japan South Korea Hong Kong

Australia India Papa New Guinea

Singapore Malaysia New Zealand

AsCenT PArTners insiGHTs

The spirit of deal making is returning to Asia-Pacific as deal volumes and values figures post noticeable recoveries from the doldrums of previous years. Ascent Partners’ Director William Yuen discusses trends and tactics in deal making and M&A valuation.

Where are we likely to see the most M&A in Asia-Pacific in the year ahead, and what features will define such activity going forward?

Deal making in China will continue to be a core component of M&A in the region, despite the country’s slowdown as of late. While industry consolidation will be a defining theme, another component will involve family-run companies in the middle market and how they deal with succession issues. China’s first generation of entrepreneurs is reaching retirement age, and many have children who have no interest in taking over the family business. These owners face the problem of finding an appropriate buyer who will ensure their legacy businesses are preserved. Additionally, while owners may be willing to sell, it’s not always at an agreeable price with prospective investors.

In the past, this valuation gap created a stumbling block between buyers and sellers. However, rising wages in China are creating a disincentive for foreign investors to enter the market, and some are re-evaluating their China strategies. Also, the end of a year long hiatus to public listings on China’s A-share market has seen IPO activity return, providing a benchmark for valuations of Chinese companies.

With respect to valuations in general across Asia-Pacific, what are the best approaches to valuing a company?

There are generally three approaches to valuing a company: cost approach, market approach, and income approach.

The cost approach considers the cost of creating a replica company. This approach is seldom used because the values of intangible assets – such as brand and human capital – are not taken into account.

The market approach employs market data from comparable guideline companies in similar industries to develop a measure of value for the target company. The valuation could be derived from the transaction data of bought and sold companies, both private and public, which are similar to target, with adjustments made to the indicated market prices to reflect any differences specific to the transactions.

In the income approach, the value of a company is the present worth of the expected future economic benefits of its ownership. The valuation is developed through the application of a discount rate that reflects all business risks including intrinsic and extrinsic uncertainties in relation to the company’s operation to the expected future income generated into

a present market value. This approach has the advantage of being able to consider the time value of money and the relevant risks associated with the company.

What current issues are causing difficulties in building an accurate valuation for companies in China?

Valuation often requires market and transaction data. This information, especially when the underlying company is not publicly listed, might not be easy to acquire. Country-specific risk factors such as geopolitical stability, the legal environment, and policy uncertainties pose challenges in the valuation of companies.

Beyond simply financial results, historical operating results will also help to provide good reference information on a company’s recent performance. However, the true value of a company rests on its future earnings capability. It is therefore necessary to understand the key drivers of earnings, business outlook, and the future development plans of target company before acquiring or investing.

Additional complexity often arises when valuing Chinese companies because their historical financial statements could have been tweaked for tax purpose.

Key

Energy, mining & utilities

Industrials & chemicals

Consumer

TMT

Business services

Real estate

Agriculture

Interest from foreign investors with headquarters outside the region was reflected in an uptick in deal dollars into Asia-Pacific in 1Q 2014. For the quarter, inbound deal traffic totaled 99 deals worth US$25bn. While this was a decrease from 1Q 2013’s 136 deals, in value terms the total nearly doubled from US$14bn the year before.

Buyers from the United States completed the most inbound transactions (58), followed by the United Kingdom (12) and Germany (10) for 1Q 2014. In value terms, Belgium had one deal worth US$5bn, followed by the United Arab Emirates (four deals worth US$4.3bn) and the United States (24 deals worth US$3.9bn).

The information contained herein is based on currently available sources and should be understood to be information of a general nature only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. This document is owned by Ascent Partners and Mergermarket, and its contents or any portion thereof, may not be copied or reproduced in any form without permission of Ascent Partners. Clients may distribute for their own internal purposes only.

All deal details and M&A figures quoted are proprietary Mergermarket data unless otherwise stated. M&A figures may include deals that fall outside Mergermarket’s official inclusion criteria. All $ symbols refer to US dollars.

ContaCt US William Yuen, Director william@ascent-partners.com +852 3679 3822, +65 6637 8924

adrian ng, Deputy Publisher, Remark aPaC adrian.ng@mergermarket.com +852 2158 9743

Following historical trends, domestic deals accounted for the bulk of M&A in Asia-Pacific. Across the region, domestic transactions totaled 519 (72% of deal volume), a noticeable increase from 1Q 2013 which had only 465 transactions (67%).

Domestic transactions were most prevalent in Japan, the Philippines, China, and South Korea, where such deals made up more than 75% of M&A. As noted previously, industry consolidation has created impetus for M&A in China, with state-owned enterprises and private corporations completing deals. The same is true in Japan where an overcrowded domestic market is causing Japanese corporates to turn to M&A to merge or acquire competitors or venture abroad in search of new growth points.

Hong Kong and Singapore saw an almost even split between inbound and domestic transactions. The two jurisdictions have an established business environment. This has been an enticing factor for inbound investors looking to limit their exposure to risk inherent in emerging markets. India was the only country in Asia-Pacific where inbound activity surpassed domestic transactions.

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Direction of transactions (Top 10 jurisdictions by volume)

Inbound M&A

Direction of transactions by deal volume

Inbound Domestic

Inbound Domestic

Key:Number of deals Value of deals (US$m)

India26$2,931

Singapore5$500

Indonesia2$59

Malaysia4$488

Thailand2$187

Australia25$9,319 New Zealand

2$12

China8$1,024

Taiwan3$771

South Korea6$7,847

Hong Kong8$90

Japan4$21

Direction of deal traffic

Foreign investor interest