The research, entitled Emerging Opportunities: Financial Services (FS) M&A in Asia 2011, found that Chinese respondents were particularly bullish about the prospects for M&A in their market and are also upbeat about their own organisation’s M&A plans for the year ahead. This is despite the fall in the value of financial services M&A deals by almost 30% in the first half of this year compared to 2010.
“Chinese institutions have mostly sat on the sidelines of global FS M&A since the crisis but as we enter into a new period of volatility there are signs that some may be tempted to enter the fray and pick up inexpensive but strategic assets,” said Matthew Phillips, leader of financial services M&A at PwC China.
“I do not expect a big splash in a retail play in Europe or the US, but I would not be surprised to see Chinese buyers being increasingly aggressive in deals involving wholesale funding such as capital leasing and project finance as well as those involving key emerging markets trading partners.”
PwC also said that the survey of Chinese respondents indicates that their interest is likely to be close to home, with 60% expecting activity to be domestic or within the North Asia region, a further 38% expecting deals within Asia to predominate in the next 18 months. Only 3% felt that activity would be driven from outside Asia.
Furthermore, PwC said the findings from the survey – the most extensive the survey has produced in six years – show that Chinese respondents are keener than the wider Asia sample to develop new lines of business via M&A. In particular corporate banking, investment banking, reinsurance and capital markets were cited as the most attractive business lines.
PwC said that interest in investment banking and capital markets is markedly higher amongst Chinese respondents than the rest of Asia, indicating continuing interest in the IPO market which has weathered recent volatility better than many other global financial centres.
In terms of where activity is likely to be centred, respondents cited mainland China as the area most likely to witness the greatest level of activity, reaffirming its position as the most attractive destination in Asia, followed by Hong Kong and Taiwan.
PwC said the activity is being stimulated by a range of strategic factors, including high levels of growth and burgeoning domestic consumption, growing pressure on operational and capital efficiency and ongoing divestments by strategic investors from outside the region.
“Notwithstanding the economic uncertainties on the horizon, many Asian financial institutions are increasingly keen to use M&A to acquire customers and to create financial conglomerates offering sophisticated product offerings to their corporate and high net worth clients,” said Christopher Chan, advisory partner PwC Hong Kong.
“In general, Asian regulators have been able to take a less stringent line on capital, liquidity and separation of retail and investment banking than their counterparts in the West. In some Asian countries, regulators are encouraging the emergence of stronger institutions, but the spectre of protectionism remains.”
