Record $734 bn in Asia-Pacific M&A on back of mega deals in Japan, India

Blockbuster deals in Japan and India helped push acquisition volumes in Asia Pacific to a record high during the first half, even as Chinese companies faced government pressure to curb overseas ambitions.

Asia-Pacific companies were involved in $734 billion of announced mergers and acquisitions in the first six months of this year, according to data compiled by Bloomberg. That’s a greater value than any comparable period on record and a 38 per cent increase from the same period a year ago.

China’s government said in February it was restricting outbound investment in sectors such as property, hotels, cinemas and sports clubs. Yet such acquisitions as Takeda Pharmaceutical Co.’s $62 billion deal for Shire Plc and Walmart Inc’s $16 billion investment in India’s Flipkart Group remind the region’s bankers that there’s a lot of deal potential beyond China.

“We see meaningful deal diversification from China outbound M&A in previous years to a strong pickup across the wider region,’’ said James Tam, head of Asia-Pacific mergers and acquisitions at Morgan Stanley in Hong Kong.

Takeda’s announced acquisition of Shire, the U.K. rare-disease drugmaker, is the biggest-ever overseas deal from Japan, where companies are seeking to diversify and reduce their dependency on an aging population by expanding overseas.

Japan Outbound

This trend is continuing into the second half of the year. On Thursday, Taiyo Nippon Sanso Corp., a Japanese supplier of oxygen and argon to the steel industry, agreed to pay 5 billion euros ($5.8 billion) for most of Praxair Inc’s European assets.

“Japan is seeing corporates in a host of sectors seek opportunities around the globe and also a higher number of corporates deciding to sell select divisions,’’ said Kerwin Clayton, co-head of M&A for Asia Pacific at JPMorgan Chase & Co in Hong Kong. “These two factors and a supportive financing environment are creating a strong level of activity.’’

Announced deals involving Indian firms roughly doubled in the first half to $83.5 billion from $42 billion a year earlier, the data show. That was led by Walmart’s investment in Flipkart to buy a 77 per cent stake in the Indian e-commerce market leader.

India is the world’s fastest-growing major economy, with a burgeoning middle class that’s snapping up smartphones and doing more of their shopping and banking online. Other domestic deals included Tata Steel Ltd.’s purchase of Bhushan Steel Ltd. and Bharti Airtel Ltd.’s agreement to merge a unit with Indus Towers Ltd., the country’s largest wireless tower operator.

“In India we are seeing high activity as their corporates seek global opportunities, more Western companies are trying to increase presence in India, and private equity is very active,” Clayton said.

Resilient China

Even with China’s regulatory, political and financial uncertainty, companies based in the world’s most populous country were active buying and selling assets. Chinese firms were involved in $317.5 billion of deals during the first half, a 12 per cent increase from a year earlier, the data show.

China Three Gorges Corp. is seeking to buy the stock it doesn’t already own in Portuguese utility EDP-Energias de Portugal SA, though its 9.1 billion-euro offer was rebuffed as being too low. China’s biggest renewables developer already is the largest shareholder in EDP.

 Hong Kong’s Victor Li, who succeeded billionaire father Li Ka-shing as chairman of CK Hutchison Holdings Ltd. in May, began his tenure with a A$13 billion ($9.6 billion) bid for Australian gas pipeline operator APA Group, the Hong Kong-based conglomerate’s biggest overseas acquisition. And on July 3, Li’s company said it is taking full control of an Italian mobile-phone joint venture for 2.45 billion euros.

“We can expect M&A activity to remain strong, driven largely by cross-border flows, including inbound investment into the region,’’ said John Kim, head of M&A for Asia ex-Japan at Goldman Sachs Group Inc. “Financial sponsors will continue to be active dealmakers given the large amount of funds raised for investment.’’