Asia
Are Asian investors still hungry for Europe?
January 10, 2020
Not so long ago, Europe found itself in the midst of a feeding frenzy of Asian buyers. The number of cash-rich Eastern investors looking to expand their footprint reached its peak in 2016, when, according to PitchBook data, there were 313 European M&A deals with an Asian buyer, worth a total of $103.8 billion. This was nearly four times the $27.7 billion transacted across 172 deals five years prior.
Asian investment in Europe may be a fraction of that from North America, but its impact is still significant. A report on foreign direct investment released last year by the European Commission revealed the buying spree had triggered a rise in the number of foreign-owned European companies, particularly where two of Asia's largest economies were concerned. The study showed that investors from China, including Hong Kong and Macao, went from controlling 5,000 EU firms in 2007 to more than 28,000 in 2017. Over the same time period, the number of EU firms controlled by India-based investors jumped from 2,000 to 12,000.
Since 2016, Asian M&A in Europe has cooled. Deal count has declined significantly, down to just 158 deals for 2019, the lowest such deal count since 2010, according to PitchBook data. That said, there was still a bump in the total M&A value in 2019—€85.3 billion (around $94.9 billion), up from €59.2 billion in 2018—largely thanks to a handful of blockbuster deals. Among them was Takeda Pharmaceutical Company's purchase of Dublin-based drug giant Shire for a reported $58.6 billion last January.
While Asia's great European binge seems to be subsiding, it may not signal a long-term change in sentiment. There are a few factors worth considering.
First, M&A activity has generally been on a downward trajectory in Europe. Deal count peaked in 2015 at 12,143 deals, while deal value hit its most recent high the following year, with €1.2 trillion of capital invested, according to PitchBook's 3Q 2019 European M&A Report. For comparison, €752.5 billon was transacted across 6,393 deals as of September 30, according to the report. The Brexit process—which began with the 2016 referendum—has undoubtedly had a role in suppressing M&A activity as investors delay decisions on both sides of the Channel amid growing uncertainty of the UK's future relationship with Europe.
There are more external factors, such as the trade tensions between China and the EU, that have hampered M&A activity. Nevertheless, dealflow in terms of value has stayed strong as some Asian investors remain undeterred. The devaluation of the pound resulting from Brexit also created opportunity for a bargain. One of the biggest deals last year was CK Asset Holdings' August acquisition of London-listed brewer and pub giant Greene King for £2.7 billion (around $3.3 billion at the time).
"The UK is still seen as a very pro-business environment. It has a legal system with a rule of law that foreign investors still feel very comfortable with," explained Nick Bryans, a London-based partner with law firm Baker McKenzie advising on M&A deals. He told PitchBook that Asia's long-term appetite for European assets will remain strong, particularly with regard to Chinese investors and UK targets. He added: "There are strategic targets and opportunities for Asian investors to acquire brands, know-how and technology, which is interesting to them. That's why the numbers have held up in Europe and the UK in particular."
Bryans predicts the easing of liquidity in China and growing reciprocity in trade, leading to more access into Chinese markets, could yet spur more inbound M&A in Europe: "I think 2020 doesn't look too bleak. We have Brexit looming and we know that there's a little bit of clarity now in terms of what the UK government wants to do."
While the risk of a disorderly exit remains, Bryans noted another significant factor for future M&A that should not be overlooked is a trend toward more stringent investment screening. In the EU, this is partly fueled by growing suspicion surrounding China's economic ambitions in the region. The EC's aforementioned FDI report coincided with new investment regulations coming into force that enforce more scrutiny of deals. The UK government, meanwhile, has also revealed plans to strengthen powers to scrutinize and intervene in business transactions on the grounds of national security.
Still, Bryans noted that with Brexit firmly in the cards, the UK—Europe's biggest draw for overseas investment in Europe— will make greater efforts to attract investment from China, Japan and other countries that have been traditional trading partners.
Featured image via Daniel Grizelj/DigitalVision/Getty Images
Asian investment in Europe may be a fraction of that from North America, but its impact is still significant. A report on foreign direct investment released last year by the European Commission revealed the buying spree had triggered a rise in the number of foreign-owned European companies, particularly where two of Asia's largest economies were concerned. The study showed that investors from China, including Hong Kong and Macao, went from controlling 5,000 EU firms in 2007 to more than 28,000 in 2017. Over the same time period, the number of EU firms controlled by India-based investors jumped from 2,000 to 12,000.
Since 2016, Asian M&A in Europe has cooled. Deal count has declined significantly, down to just 158 deals for 2019, the lowest such deal count since 2010, according to PitchBook data. That said, there was still a bump in the total M&A value in 2019—€85.3 billion (around $94.9 billion), up from €59.2 billion in 2018—largely thanks to a handful of blockbuster deals. Among them was Takeda Pharmaceutical Company's purchase of Dublin-based drug giant Shire for a reported $58.6 billion last January.
While Asia's great European binge seems to be subsiding, it may not signal a long-term change in sentiment. There are a few factors worth considering.
First, M&A activity has generally been on a downward trajectory in Europe. Deal count peaked in 2015 at 12,143 deals, while deal value hit its most recent high the following year, with €1.2 trillion of capital invested, according to PitchBook's 3Q 2019 European M&A Report. For comparison, €752.5 billon was transacted across 6,393 deals as of September 30, according to the report. The Brexit process—which began with the 2016 referendum—has undoubtedly had a role in suppressing M&A activity as investors delay decisions on both sides of the Channel amid growing uncertainty of the UK's future relationship with Europe.
There are more external factors, such as the trade tensions between China and the EU, that have hampered M&A activity. Nevertheless, dealflow in terms of value has stayed strong as some Asian investors remain undeterred. The devaluation of the pound resulting from Brexit also created opportunity for a bargain. One of the biggest deals last year was CK Asset Holdings' August acquisition of London-listed brewer and pub giant Greene King for £2.7 billion (around $3.3 billion at the time).
"The UK is still seen as a very pro-business environment. It has a legal system with a rule of law that foreign investors still feel very comfortable with," explained Nick Bryans, a London-based partner with law firm Baker McKenzie advising on M&A deals. He told PitchBook that Asia's long-term appetite for European assets will remain strong, particularly with regard to Chinese investors and UK targets. He added: "There are strategic targets and opportunities for Asian investors to acquire brands, know-how and technology, which is interesting to them. That's why the numbers have held up in Europe and the UK in particular."
Bryans predicts the easing of liquidity in China and growing reciprocity in trade, leading to more access into Chinese markets, could yet spur more inbound M&A in Europe: "I think 2020 doesn't look too bleak. We have Brexit looming and we know that there's a little bit of clarity now in terms of what the UK government wants to do."
While the risk of a disorderly exit remains, Bryans noted another significant factor for future M&A that should not be overlooked is a trend toward more stringent investment screening. In the EU, this is partly fueled by growing suspicion surrounding China's economic ambitions in the region. The EC's aforementioned FDI report coincided with new investment regulations coming into force that enforce more scrutiny of deals. The UK government, meanwhile, has also revealed plans to strengthen powers to scrutinize and intervene in business transactions on the grounds of national security.
Still, Bryans noted that with Brexit firmly in the cards, the UK—Europe's biggest draw for overseas investment in Europe— will make greater efforts to attract investment from China, Japan and other countries that have been traditional trading partners.
Featured image via Daniel Grizelj/DigitalVision/Getty Images
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