So what’s the prognosis for M&A in Asia? “There will definitely be some uptick,” says Rafalowski. “Both China and Japan are on buying sprees right now, so they’re going to be looking at bigger assets.” Banks, insurance companies and other foreign firms will continue to shed their assets in the region to shore up their balance sheets, and Asian companies will be looking to buy as local currencies strengthen against the U.S. dollar.

 

Rafalowski spoke to CFO Innovation’s Cesar Bacani on M&A trends and the results of the IntraLinks study, Global Corporate M&A Survey: What Lies Ahead for Corporate Development. Below are edited excerpts from the interview.

 

There are two ways you can measure the depth and breadth of the M&A market in Asia compared to the rest of the world. You have the number of deals that are done and then you have the volume of the capital that’s actually transferred.

 

The number of deals that is actually done in Asia is comparable to EMEA (Europe, Middle East and Africa) and also the U.S. It’s definitely less, but it’s not off by a factor of two or a factor of three or a factor five. It’s actually not that far off.

 

But a lot of the deals are negotiated deals between small and mid-sized businesses. Someone says, ‘Would you like to buy me, and the other company says, yes, I’d like to buy you, no problem.’ It’s that easy. Versus in the West, you have a lot more larger deals that are going in terms of actual value deal in dollars or whatever the currency you want to use.

 

There will definitely be some uptick. Both China and Japan are on buying sprees right now, so they’re going to be looking at bigger assets. And then there will be more significant deals because a lot of those assets [bought by Asian companies] may be [non-core] assets that are sitting outside the country or outside the region, in other parts of the world where other companies with deep pockets would come along and want to go buy them.

HOT SECTORS

Financial services is the sector that has been impacted the most by the financial crisis. There’s a lot of banks, advisory firms, hedge funds and so on that just couldn’t sustain [their business] based on how leveraged they were. AIG is a great example. It has basically gotten rid of almost all of its assets in Asia. In Japan, [Citigroup subsidiary] NikkoCiti has also gotten rid of a lot of its assets. But when you look at Chinese banks, as an example, you didn’t see a whole lot going on there – except for purchasing.  

That’s right. But if you think of the regulations in terms of how much liquidity or how much cash these financial institutions have to have on hand, all that’s changed in the world in the last year. So as everything started to melt down, a lot of these companies started to say: well, we need more cash balance to manage the ratio of our debt to capital. That’s why financial industry groups are getting rid of a lot of their assets.

 

Our clients, the ones we’re working with, all of them foresee tighter regulations going forward. That means they need be making sure their debt to capital ratio is a little bit better, as part of their fiduciary duty. I think a lot of the banks out here are being proactive in doing this. We’re going to see more [M&A activity in the financial sector] coming down the road.