Asia-Pacific financial sector M&A declines amid uncertainty

Volume falls 38% amid global turmoil; China, South Korea post growth

The number of mergers and acquisitions involving financial companies in the Asia-Pacific region dropped 10% in 2016 from the previous year amid increased global uncertainty, according to Deloitte Tohmatsu Financial Advisory.

The business of buying and selling companies was negatively affected by a series of news events that have muddied the global economic outlook, such as Britain's vote to leave the European Union, Deloitte said.

China and South Korea, however, were notable exceptions, with deal volume growing significantly.

Deloitte compiled data concerning M&As involving banks, leasing companies, credit card issuers, auto and housing loan providers and other financial service companies in 11 countries and region. Deloitte collected data about undisclosed deals through interviews, as well as information about published transactions.

A total of 174 M&A deals involving financial service providers took place in the 11 Asia-Pacific nations last year, down from 193 in 2015. They were worth $43.5 billion in total, a 38% decline from the previous year. Deal volumes fell in such major M&A markets as Japan, Hong Kong and Australia.

In addition to Brexit, the U.S. presidential election and increased tensions over territorial disputes in the South China Sea also contributed to a deteriorating environment for the M&A business, Deloitte said.

In Japan, only 10 M&A deals were made in the financial sector in 2016, less than half the figure for 2015. The deals struck in 2015 included Sumitomo Mitsui Financial Group's purchase of General Electric's Japan leasing business for about 600 billion yen ($5.37 billion at current rate) and Citigroup's sale of its retail banking business in Japan.

The number of transactions in China, which accounts for some 60% of overall deal volume in the region, remained little changed at 42 in 2016. But these transactions were worth $25.3 billion, a 13% increase.

In one of the major deals concluded in China, engine maker Jinan Diesel Engine bought shares in the financial unit of state-owned oil giant PetroChina. The deal reflects a growing trend among Chinese nonfinancial companies of seeking new revenue sources in the financial service sector, as the Chinese economy loses steam.

The financial arm of e-commerce company Alibaba Group raised some $4.5 billion from a Chinese government fund and other sources to spend on investments for further growth, including spending to enhance its Alipay online payment service.

Source: Asian Review