Asian dealmakers scout for distressed sales amid COVID-19 pandemic

Asia‘s dealmakers are looking to distressed sales and a pick-up in take-private deals after fallout from the coronavirus outbreak sent first-quarter M&A activity to a sevenyear low.

Bankers and other advisers, fearing a prolonged hiatus in headline mergers and acquisitions (M&As), are turning to other forms of activity as governments worldwide restrict movement to curb the spread of the virus, making travel and face-to-face meetings near-impossible.

Deal value across the Asia-Pacific region, at $177.4 billion, was down 20% in the first three months of 2020 versus the same period a year earlier, showed data from Refinitiv. Deals involving China, where the virus was first reported at the end of last year, dropped 16%.

“I’m seeing significant disruption in our business,” said a senior Hong Kong-based M&A banker. “Volatility, earnings, predictability – all in the wrong direction. I am not seeing any signs of rushing for deals.”

British retailer Tesco PLC  sold its remaining Asian business to Thailand’s CP Group and subsidiaries for $10.6 billion in early March shortly before the virus took hold worldwide, scoring the largest deal this quarter.

Delays, second thoughts

The outbreak has prompted governments to impose widespread measures disrupting business activity, and caused stock markets to plunge as investors try to factor in the economic impact.

Japan’s benchmark Nikkei 255 and Hong Kong’s Hang Seng are both down more than 15% this year, while China’s blue-chip CSI 300 is down nearly 10%.

Bankers and lawyers fear they will continue to see negotiations and deals signed but not completed or put on hold as sellers and buyers reassess business fundamentals.

“Buyers obviously are concerned as whether or not today’s value is the right value. Everyone’s business forecast is entirely thrown up in the air,” said the M&A banker, who declined to be identified due to the sensitivity of the matter.

Singapore Press Holdings Ltd, which last month struck a deal to acquire a portfolio of senior housing properties in Canada for C$232.9 million ($163.4 million), said this month it had agreed not to proceed with the transaction due to “global market instabilities” caused by the outbreak.

Some buyers are contemplating triggering material adverse change (MAC) clauses in deal agreements that can allow them to walk away, renegotiate or delay as prices fall, while others eyeing assets may want to have epidemic- or pandemic-related clauses added to contracts, lawyers said.

An MAC is usually defined as a change that significantly reduces the value of a company.

“People’s experiences now in the current environment will most likely forever shape their approach to doing deals in the post-pandemic world,” said Steven Tran, a Hong Kong-based partner with law firm Mayer Brown.

Under pressure

Grounded dealmakers reduced to conference calls are still looking for opportunities, and believe takeprivates and distressed asset sales could increase as valuations tumble and default risks rise.

Takeprivates rose nearly 60% year-on-year to $42.8 billion in the first quarter, including Singapore developer CapitaLand Ltd’s $6.1 billion merger of two trust units, and the $6.2 billion offer for Hong Kong’s Wheelock & Co Ltd by its controlling shareholder.

“This is definitely a space to watch,” said Dorothea Koo, a partner with law firm Baker McKenzie. Individuals or companies may have financial difficulties due the market conditions, potentially driving sales of shares in listed firms, she said.

Dealmakers are eyeing the potential to bring in private equity firms on what is expected to be a rush by listed companies to raise funds by selling shares.

“The conversation with clients now is about how to restructure, strengthen companies and making sure that additional funding sources are identified, and if possible, made available,” said Keoy Soo Earn, regional managing partner, financial advisory, at Deloitte Southeast Asia.

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.