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Perspectives

The biggest financial sector deals of the year, Asia Pacific – 2015

Deloitte research confirms that financial sector based deal flow in Asia Pac exceeded $70bn in 2015 with almost 200 transactions brought to market

Market update

The world economy has slowed down significantly. Volatility in China and Europe, high sustained unemployment levels especially in Europe, falling commodity prices and geopolitical issues such as migration, civil conflict and terrorism are all damaging the prospects of a global recovery.

Certain developed countries saw growth improvement in 2015, notably the US, UK and Japan but the economy for each is fragile and continued growth uncertain.

With regards Asia and Australasia, according to The Economist Intelligence Unit, growth remained at 4% in 2015 impacted by the slowdown in China. Notwithstanding the weak demand of key trading partners, growth for the region is forecast to increase to 4.1% in 2016 as many countries are benefiting from lower oil prices and better economic conditions before falling to an average of 3.9% a year through 2017 – 2020 due to lower investment spending. 

Despite the softer economic backdrop, 2015 was the busiest year ever for mergers and acquisitions, with global M&A volume surpassing $5 trillion, according to Dealogic. In this inaugural Deloitte report, we focus on Asia Pacific and, specifically, the financial services sector covering both equity and asset transactions (loan portfolios). The types of businesses covered in our analysis include banks, leasing companies, auto, consumer and micro-finance businesses and credit card companies.

In 2015, we saw almost 200 transactions covering more than $70bn of deal value brought to market. Most of the markets in AsiaPac saw some financial sector deal activity.

Without doubt, it is the Chinese market where activity has been the most significant (in terms of value), with more than $22bn of deal value from 41 transactions representing 32% of the region’s deal value.

At the opposite end of the spectrum, we found no reported transactions in Malaysia and only single deals in Brunei, New Zealand and Samoa.

The most common type of transaction was a bank acquisition with $33bn of deal value compared to $13.6bn of portfolio trades and $13.5bn relating to leasing assets.

In terms of an attractive market for foreign investors, Indonesia was the most appealing with ten cross border transactions.

We are mindful that not all trades are publicly announced especially in the loan portfolio space and for some disclosed transactions, deal value was not provided. For loan portfolios, we have included data received from clients, market participants and the Deloitte network whereas for equity transactions, our research is limited to Deloitte public research sources (Mergermarket).

Notwithstanding the weakness of the global economy, we expect greater deal flow in 2016 than 2015 as banks search for better returns in a low / negative interest rate environment. We do not expect significant inward activity from European and US financial institutions in the region but see Japanese and Chinese banks continuing to look for strategic investments and Japan-based financial investors seeking investments in NPL books in the region,especially Thailand.

Other countries where we predict further activity,beyond the four largest countries shown opposite, include Indonesia and Philippines, as a result of regulatory change which encourages foreign direct investment into the respective banking sectors.
 

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