Mid-Market Mergers and Acquisitions are Thriving in Asia

Growing populations and expanding economics are attracting American companies to Asia while cash-rich Chinese companies have been investing heavily in American firms. It’s opening new opportunities for middle-market companies in both regions.

Clifford Chance reported that global mergers & acquisitions is at an all-time high. Between 2014 and 2015, global M&A activity increased 43%. Asia Pacific saw one of the biggest increases, with a 63% rise in deals, totaling $1.2 trillion. Emma Davies, Clifford Chance’s Healthcare Sector M&A partner in Hong Kong, said that Asia is a popular destination for many international and domestic companies looking to capitalize on large populations and rising income levels.

Their report also noted that the regional M&A boom is largely self-driven and fueled by domestics mergers in China, along with conglomerate restructurings. Many “mega-deals” drove values to record levels in 2015. That trend is expected to continue in 2016. However, the report did note that there could be some headwinds, including adverse business performance in some parts of China. “Local protectionism and regulatory issues are cited as the greatest concerns for cross-border deals in the region,” said the report.

Meanwhile, the MergerMarket Group said that, year-to-date, middle-market deals have made up nearly 60% of the volume in Asia and have contributed to more than half of the deals since 2011. The report said that, in an environment of slowing economic growth, companies are turning to “buy-and-build” M&A in the middle market to accelerate growth. Many are also looking for what they call a “transformative deal:” that could put them ahead of their competition. Most of these inbound deals are originated in North America (55% of volume vs. 58% of value). In one high-profile mid-market M&A deal, South Carolina-based 3D Systems last year purchased a 65% stake in Wuxi Easyway Model Design & Manufacturing =to boost sales and distribution in China.

While some American firms are acquiring companies in Asia, Asian companies are also acquiring firms here. CNBC reported that Chinese firms have been on “a buying spree” for American companies. According to the National Committee on U.S.-China Relations, Chinese companies invested more than $15 billion in U.S. companies last year, a 30% increase over the previous year. As of May, there had been 72 transactions, 39 of which involved technology companies. Chinese firms also have been investing in tourism and hospital industries.

Private equity firms that focus on buying and selling American companies say the Chinese clients are a welcome addition with more options and capital in the pool of buyers. “Unlike in the past, we have now begun looking for Chinese buyers because of the significant increase in investments by Chinese companies in the U.S.,” said Abhaya Shrestha, principal at the private equity firm of Corinthian Capital LLC.